[转载]巴菲特致伯克希尔股东的信

来自：网易财经

 

    伯克希尔公司董事长巴菲特（Warren Buffett）2月26日发布了长达27页的致股东的信，他在信中谈到关于伯克希尔的业务模式与方向，以及自己的接班人问题，同时透露包括高盛与通用电气今年将回购伯克希尔持有的优先股，以下为巴菲特致股东信的全文。

 

    关于保险业务部分和GEICO公司

 

    现在让我告诉你一个真实的故事，这将有助于你了解一个企业的内在价值远远超过其帐面价值，而这个故事也可以顺便让我重温一下那些美好的回忆。

    60年前的最后一个月，GEICO走进我的生命之中，而这也彻底改变了我的一生。当时我还是哥伦比亚大学的一名研究生，是被我的恩师本-格雷厄姆推荐过去的。

    有一天，我在图书馆里翻阅《美国名人录》时发现本（Ben）是政府雇员保险公司（现在的GEICO）的董事长。当时我对保险业一无所知，同时也没有听说过这家公司。后来图书管理员给我看了一些关于保险公司的汇编材料，才让我对GEICO有了初步的了解，之后我决定拜访下这家位于华盛顿的公司。

    但是当我到达公司总部的时候，门却是紧闭着的。之后我开始不厌其烦地敲门，一个看门人把我带到了当时公司里唯一的一个人面前——洛里默·戴维森（Lorimer Davidson）。接下来的4个小时是我的幸运时刻，戴维森十分详细地把保险业和GEICO给我讲解了一遍，这是我们美好友谊的一个开始。此后不久，我从哥伦比亚大学顺利毕业，并成为在奥马哈市（Omaha）的一名股票推销员。当然，我从 GEICO那里获得了不少建议，使我在一开始就拥有了数十家客户。而在和戴维森会面之后，我所投资的9800美元也实现了75%的盈利率。

    后来，戴维森成为GEICO公司的CEO，但是他做梦也没有想到公司会在上世纪70年代中期（当时他已退休了）遇到了巨大麻烦——股票跌幅超过95%！伯克希尔（Berkshire）当时购买了GEICO约三分之一的股票，后来由于GEICO的股票回购措施，这些股票在以后的几年中以每年50%的涨幅逐年增长，伯克希尔因此而赚的盆满钵满。

1996年初，伯克希尔准备收购GEICO剩余50%的股份，这让95岁的戴维森大为高兴，当时还专门为此制作了一个视频来告诉大家他有多高兴，并希望GEICO能够和伯克希尔能够长期合作下去。

    在过去的60年中，GEICO发生了很多事，但是其核心目标——为美国人节省花在购买汽车保险上的钱——一直没有改变。而围绕这个目标，GEICO已经成为美国的第三大汽车保险公司，占据着8.8%的市场份额。

    公司现任CEO托尼·莱斯利（Tony Nicely）1993年上任时该比例为2%，当时这一数据已经维持了十多年。但是在托尼的带领下，GEICO发生了翻天覆地的变化，找到了既能保持承保率的增长幅度，又能降低成本的方法。1996年，我们以23亿美元的价格购买了GEICO公司50%的股票，这笔投资随后变成了46亿美元，收益率达到了100%！而当时GEICO的有形资产净值也达到了19亿美元。而这其中还隐含了27亿美元的无形价值（经过我们的测算，GEICO公司的信誉值完全有这么高）。1995年，公司客户一共支付了28亿美元的投保金，而这其中有97%可以作为公司的收入。如果按照行业标准，这个数字比较高，但是对于GEICO来说是完全可以实现的，因为公司的运营成本较低，持续盈利能力强，顾客忠诚度也很高。

    今天，虽然公司的保费收入是143亿美元，但是我们给出的信誉值却只有14亿美元，这个数值是不会因为GEICO营收的变化而变化的。此外，在托尼的带领下，GEICO公司已经成为全美最大的个人保险机构，去年公司一共卖出769898份个人保险合同，较前年增长了34%。

    财产保险公司通常预收保险费，后付赔偿金。在个别情况下，比如有些工人的意外事故索赔，赔偿金的支付可能拖延十年之久。这种先收钱后赔钱的模式让我们持有大量流动资金，我们可以为了公司的利益把这些流动资金用于投资。尽管投保人和事故索赔不断变换，但是我们持有流动资金的数额保持稳定。因此，我们的业务量增长，流动资金就会增加。

    如果我们收取的保费超过支出和赔偿金，我们就获得了保险利润，再加上我们的流动资金带来的投资收入。实际上多年来激烈的竞争已让财产保险业承受了巨大的保险损失。这些损失就是保险业持有流动资金的代价。比如说，全美最大的保险公司State Farm，公司管理有方，却在过去十年里有七年时间承受保险损失。在此期间，该公司的亏损金额超过了200亿美元。

    在伯克希尔哈撒韦公司，我们连续八年获得保险利润，在此期间的盈利总计达到170亿美元。我相信保险业务在未来的几年里还能继续获得利润。如果其他企业向我们支付费用来持有流动资金，我们还会从投资中获利。

多年以来，保险业保费不足以支付赔偿金和支出。因此，几十年来，保险业有形资本的总收益远远低于其他行业的平均收益，业绩乏善可陈。伯克希尔哈撒韦公司拥有雄厚的经济实力，是因为我们卓越的经理人在经营着非同寻常的企业。除了盖可保险公司（GEICO）外，我们还拥有两家大保险公司和数家小公司。

    首先是伯克希尔哈撒韦再保险集团（Berkshire Hathaway Reinsurance Group），由阿吉特杰恩负责。他的经营融合了能力、速度和果断，更重要的是拥有保险业独具一格的思维方式。他从未让伯克希尔哈撒韦公司承担不合时宜的风险。我们比起该行业的其他公司来说更为保守。过去一年里，阿吉特杰恩大幅提高了人寿保险业务，带来了20亿美元的保费，今后几十年这种情形还将继续上演。

    1985年以来，阿吉特杰恩给保险业务带来了300亿美元的流动资金和数额巨大的保险利润，其他保险公司的首席执行官无法与他比肩而立。他已经为伯克希尔哈撒韦公司增添了数十亿美元的资产。

    我们还拥有通用再保险公司，由塔德蒙特罗斯（Tad Montross）负责。

    实际上，健康发展的保险业务需要四条准则：1.明白所有的风险敞口都可能造成损失；2. 保守地估计任何风险敞口实际造成损失的可能性；3. 保费金额的确定要确保利润，包括未来的损失成本和运营费用在内；4.如果不能获得合理的保费就放弃这项业务。

    许多保险公司通过了前三条准则的考验，却在第四条碰了壁。华尔街的急功近利，机构和经纪人带来的压力，或者是雄心勃勃的首席执行官不肯让业务规模缩水，导致许多保险公司以低价承揽业务。

    塔德蒙特罗斯恪守四条准则，通用再保险公司在他的领导下拥有巨额流动资金，我们预计该公司依然能保持这种资金规模。

    最后，我们拥有许多小保险公司，大多数公司有专属经营范围。他们的财报持续盈利，向我们提供了大量的流动资金。我和查理非常看重这些企业和他们的经理人。

 

   制造业、服务业和零售业

 

    在谈及制造业、服务业和零售业投资运作时，巴菲特首先解释了某些投资回报不佳的原因。

    我对一些行业的竞争强度和未来走向出现了误判。我试图本着十年二十年的长期持有来进行收购，但有时候也难免老眼昏花。

    巴菲特列举了四家创下各自行业销售纪录的公司，它们分别是电子元器件分销商TTI、房车及船舶制造商森林河公司（Forest River）、农业设备公司CTB和鞋业公司H.H.Brown。

    此外，巴菲特还着重提及了一家同比进步最快的企业——NetJets公司，该公司2010年的市场占有率是排名第二位公司的五倍。事实上，自从1998年收购该公司以来，NetJets一直处于亏损状态，但大卫索科尔（Dave Sokol）对其管理层进行了重组，并对公司的采购和支出作了合理规划，自从以后，NetJets才走上了腾飞之路。巴菲特在最后不无幽默的写到：

    于公于私我都希望NetJets公司能够一直保持顶级优秀的表现，我和家人已经乘坐该公司的飞机飞行了5000小时（相当于每七个月就要在天上待一天的时间），将来还要再飞上数千小时。我们从来没要求什么特殊待遇，与私人航空领域中最优秀的机师们共同翱翔于蓝天，就是对我们的最好礼遇。

    巴菲特又回顾了几家在制造业、服务业和零售业总榜上最赚钱的公司，他们分别是马蒙控股集团（Marmon）、伊斯卡公司（Iscar）和麦克林公司（McLane）。在列举完利好消息之后，巴菲特介绍了伯克希尔在家具建材方面遇到的困境，并列举了四家公司。但他认为：

    房市将会在一年之内开始复苏，可能是在某一时间点上进行突破。这些公司是在实力强劲之时遭遇经济衰退的，等到衰退结束它们会变得更加强大。伯克希尔的投资期是永无止境的。

 

    管制及资本密集型商业领域

 

     在管制及资本密集型商业领域，巴菲特着重提及了旗下两家最大的公司：北伯林顿铁路公司（BNSF）和中美能源（MidAmerican Energy），两家公司的经营状况都不尽如人意。在介绍北伯林顿铁路公司时，巴菲特强调：先前我就强调过铁路对于国家未来的重要性。鉴于美国人口的西进趋势，我们在北伯林顿铁路公司的股份还要进一步扩大。重任在肩，我们是美国经济循环系统中占大头的基本组成部分，有义务去不断改善铁路线。为了完成好这份职责，我们不止是要被动作出反应，还要预见社会的需要。我们不断增加的巨大投资会获得相应的回报，对此我有信心。明智的调控和明智的投资是同一枚硬币的正反面。

    而在介绍中美能源的经营情况时，巴菲特同样语重心长：

    至于中美能源，我们也享有类似的"社会契约"。为了满足客户的未来需要，我们需要不断增加产量。如果能够同时兼顾可靠性和高效性，我们会获得公正的投资回报。我对马特罗斯（Matt Rose）在北伯林顿铁路公司和大卫索科尔及格雷格阿贝尔（Greg Abel）在中美能源中所作出的社会贡献感到骄傲，同时我也对他们为伯克希尔股东们所作出的贡献感到骄傲，并心生感激。

 

    融资和金融产品

 

    这是我们规模最小的部门，包括两家租赁公司，分别是经营拖车租赁业务的 XTRA公司和经营家具租赁的寇特家具（CORT），以及全美最大的预制房屋建造商和融资公司克莱顿（Clayton Homes）。

    去年两家租赁公司的业绩都有所改善，尽管基础较差。XTRA公司的设备利用率从2009年的63%提高至去年的75%，税前利润也随之从1700万美元增加到3500万美元；寇特家具的业务也逐步复苏，同时严控运营费用，两相结合，使其扭亏为盈实现1800万美元税前利润。

    克莱顿去年建造了23343套住宅，占整个行业50046套产量的47%，该行业在1998年最为繁荣，当时年预制房屋总建造量达到372843套，我们只占8%份额。去年的销售业绩本就不佳，而我在2009年的报告中提及的融资问题加剧了我们的压力。具体来说：美国政府的住房贷款政策偏好普通住宅，使预制住宅的价格优势遭到削弱。

    克莱顿向预制住房买家提供的贷款比任何其他公司都多，我们的经验对致力于改革美国住房贷款政策的各方都具有借鉴意义。在克莱顿发放的贷款中，客户的平均FICO信用分为648，其中47%的客户信用分低于640，通常银行认为这些客户的信用有问题。尽管如此，即使在金融危机期间，我们的贷款投资组合业绩仍然表现不错。

我们的贷款客户可能因丧失工作、出现健康问题、离婚等原因而面临困难，但他们希望能保住住房，而且他们贷款的额度通常也与收入相称。如果全美各地的住房买家都像我们的客户那样行事，美国就不会面临信贷危机了。我们的成功法则是：收取合理的首付，且将每月还款额度与月度收入固定挂钩。该政策使克莱顿不致破产，也帮助客户保住了住宅。

    考虑到现今美国的房价和利率都很低，购买住房对大多数美国人来说都是明智的选择。我自己就把购买住宅看成我第三成功的投资，仅仅花了3.15万美元，我和家人就获得了52年的美好回忆，而且今后还将继续受益。（前两大成功投资是购买一对婚戒。）

    尽管如此，如果购房者的眼光高于其经济承受能力，而银行助长了他的幻想，那住房就可能成为灾难。我们国家的社会目标不应该是让家庭享受梦幻住宅，而是住进能够承担的住房。

 

    投资以及接班人

 

    截止去年年底，本公司普通股投资获得10亿美元以上的市值。

    本财报反映了我们投资各家企业创造的收益，这些被投资企业去年的未分配盈利超过20亿美元。根据我们多年的投资经验，这些未分配盈利已经相当于或超过市场收益。我们预计，本公司持有股份未来的市场收益将和被投资企业的留存收益持平。

    我们此前预计了伯克希尔哈撒韦公司正常盈利能力，根据未来的投资利润做出了三次调整（尚未考虑到目前的未分配盈利因素）。

    首次调整侧重于不利因素。去年我们讨论了持续获得大额收益的五笔固定收入投资，其中瑞士再保险公司（Swiss Re）将在2011年初回购我们持有的股份，高盛集团和通用电气公司可能在年底前回购我们持有的优先股。通用电气在10月份表示同意回购，高盛集团也同意提前30天回购，但是遭到了美联储的反对，但美联储可能在不久后批准高盛公司的回购计划。

    这三家企业必须向我们支付红利才能实现回购，金额总计14亿美元左右，不过所有的回购计划都不受投资者的欢迎。回购股份后，我们的盈利能力将会大幅降低，这是个不利消息。

    还有两个好消息来抵消不利影响，截止去年年底，我们在2011年投资积累的现金储备高达380亿美元。而收益率将有所提高，我们的投资收入将至少增加5亿美元，具体金额也许更多。短期资本市场的收益率不可能很快提高。不过对我们而言，在正常盈利能力预期中提高收益率是恰如其分的。在高收益率到来之前，我们能够把握运气，抓住商机，动用我们的现金储备，获得合理的收益。对我们而言，那一天不会提前来临。

    此外，我们持有普通股的股息会日益增加。最高的收益可能来自富国银行集团。美联储在过去两年中不考虑银行业绩好坏，限制各大银行的股息。富国银行集团在经济衰退时期持续发展，目前拥有雄厚的经济实力和盈利能力，却被迫维持低支出水平（我们无意指责美联储的决定，出于多方原因，全面限制银行股息在危机期间合情合理）。

    美联储有可能不久后取消对于股息的限制。富国银行可以恢复合理的股息政策，到时候，我们预计从富国银行获得的股息将给公司增加每年几亿美元的收入。

    我们持股的其他企业也可能提高股息。1995年，可口可乐公司向我们支付了8800万元股息，当时我们刚买下可口可乐的股票。此后，可口可乐公司每年都在提高股息。2011年，我们将从可口可乐公司获得3.76亿美元的收入，比去年高出2400万美元。今后十年，我预计股息收入将比3.76亿美元翻一番。十年后，如果我们持有可口可乐的股份带来的年度收益，比我们的投资高出100%，我也不会感到惊讶。

    总体看来，我们的正常投资收入将和我们2010年的收入持平，尽管这将减少我们在2011年和2012年的持股份额。

    去年夏天，卢辛普森表示有意退休，当时他才74岁，我和查理芒格认为这个年纪对伯克希尔来说还很年轻，他的要求让我们感到吃惊。1979年，卢辛普森担任盖可保险公司（GEICO）的投资经理，在2004年的财报中，他的突出业绩让我感到自愧不如。卢辛普森从未自己炫耀的才能，我认为他是最了不起的投资人，我们都会想念他。

    四年以前，我曾经说过，等到我和查理芒格、卢辛普森都退休后，公司需要聘请年轻的投资经理。关于首席执行官的职位，我们目前有多位杰出的候选人，但是在投资领域，我们还没有合适的人选。

    找到多位绩效卓越的投资经理人是件轻而易举的事。但是过去出色的表现尽管重要，却不能以此判断未来的业绩。至关重要的是如何取得业绩，经理人如何理解和感知风险。在风险评价标准方面，我们希望找到能力难以估量的候选人：能够预计到经济形势前所未有的影响。最后，我们需要全身心为伯克希尔哈撒韦公司效力的候选人，不仅仅把这当做一份工作。

    我和查理芒格找到了托德库姆斯（Todd Combs），他符合我们的各项要求。托德和卢辛普森的待遇相同，薪金加上和业绩相关的额外奖金。我们安排他负责收入延期和抵免业务，防止波动剧烈的投资受到不当支付的影响。对冲基金见证了普通合伙人的可怕行径，他们在上涨时获得利润，在下跌时让有限合伙人丧失此前的收益。有些普通合伙人会立即开设另一个对冲基金，套取预期利润，而不顾及过去的损失。把资金托付给这种经理人的投资者实际上成了替罪羊，而不是合伙人。

    只要我担任首席执行官，我就会继续管理伯克希尔哈撒韦公司的大部分资产，包括债券和股票。托德将初步管理30亿美元的基金，每年会重新安排管理范围。他主要负责股票，但是不限于投资形式。其他基金顾问可能会分为"长期投资"、"宏观投资"和"国际股票投资"，我们在伯克希尔哈撒韦只有一种模式，"精明投资"。

随着时间推移，如果能找到合适的人性，我们将增加一两位投资经理的职务。每位投资经理的绩效薪酬，有80%来自于他管理的投资组合，有20%来自于其他经理人的投资组合。我们希望为每位成功人士建立一套薪酬体系，促进他们的合作而不是竞争。

    等到我和查理退休后，我们的投资经理将会负责首席执行官和董事会委托的全部投资组合。出色的投资者具有良好的商业眼光，我们预计他们将在企业并购方面提供咨询和经验智慧。当然，董事会将对重大并购案作出决策。

    我们对于托德的加入发布了公告，有些评论员指出，托德是无名小卒，对于我们没有找到声名显赫的经理人表示困惑。我想知道，究竟有多少人在1979年听说过卢辛普森，在1985年认识阿吉特杰恩，在1959年听说过查理芒格。我们的目标是找到一位资历尚浅的经理人，而不是久经沙场的老将。

 

    金融衍生品

 

    两年前,在2008年年度报告中，我向你们披露伯克希尔持有251个金融衍生品合约（包括那些用于旗下公司运营的合约，比如中美能源公司），现在这一数字是203，我们增加了一些新的投资，而一些旧合约已经到期或被解除。

    这些衍生品均由我本人负责，它们主要包括两种类型。但都属于和保险相似的投资活动，即我们为他人承担极力避免的风险而收取费用，在这些交易中我们采用的决策机制也与保险业务相似。此外我们在缔结这些合同时预先收费，因此不会面临对手风险。这点相当重要。

    第一类衍生品主要是缔结于2004-2008年间的合约，它们要求：如果某些高利率债权的发行公司到期无法清偿，伯克希尔将给予赔付。从这些合约中我们总共收取了34亿美元费用，在2007年的年度报告中，我曾表示将从中获取"保险收益"，也即我们的赔付将低于收取的费用。

    后来我们经历了金融恐慌和严重的经济衰退，一些公司未能如期清偿债务，我们为此赔付了25亿美元。尽管如此，因为风险较高的合约基本已经到期，我们面临的风险很大程度上已经过去了。因此我们几乎肯定会按照原计划获得保险收益。在这些合约期间，我们还得以使用平均达20亿美元的无息流通资金。总之，我们收取的费用适当，这在过去三年的糟糕经济环境中保护了我们。

    第二类衍生品则是所谓的"认沽期权"，我们为美国、英国、欧洲和日本的希望避免股价暴跌风险的投资者提供保险，这些合约与各种股价指数挂钩，比如美国的标普500指数、英国的富时100。在2004至2008年间，我们缔结了47项此类合约，收取了48亿美元费用，这些合约期限大多是15年。

    关于这些合约的情况，我向大家披露如下：在2010年下半年，我们解除了8个原定于2021至2028年间到期的合约，因此支付了4.25亿美元，而原来因这些合约收取的费用是6.47亿美元。这意味着我们获得了2.22亿美元净盈利，同时在三年内无息、无限制的使用了6.47亿美元资金。

    截至去年年底，我们还有39个认沽期权，这些合约我们总共收费42亿美元。它们将来的具体收益当然是不确定的，但我可以从下列角度说明：如果上述合约到期时，其涉及指数的股价与2010年12月31日相同，而外汇汇率保持不变的话，我们需要在2018至2026年间偿付38亿美元。

但在我们的资产负债表上，我们将这些证券的负债记为67亿美元，换句话说，如果相关指数不变，我们将在这些合约到期的那几年中录得29亿美元盈利，也就是67亿美元减去38亿美元。我相信股价很可能会上涨，如果这一预言成真，我们的收益将更大，当然这并非确定的事情。确定的是，在超过10年之间，我们将可以免息使用收取的42亿美元资金。

 

   报告与误报：哪些数字在财报中算数？

 

    我和查理发现了有利于评估伯克希尔、衡量其进展情况的数字，已经在前面提供给大家。

    下面我们重点谈谈被忽略的一个数字：净利润，其媒体作用远大于所有其它数字。这个数字对大多数公司来说很重要，但对伯克希尔来说往往毫无意义。不管业务如何运营，我和查理总能在任何特定时期合法地创造想得到的净利润。

    我们具有这种灵活性是因为净利润数字中纳入了投资的已实现收益或亏损，排除了未实现收益（及大部分情况下的亏损）。例如，如果伯克希尔某年未实现收益为100亿美元，同时实际亏损为10亿美元，那么我们报告中只计算亏损的净利润就将低于营业收入。同时，如果我们前一年有已实现收益，新闻提要中就可能会宣布我们的收益降低X%，而实际上我们的业务可能已大大改善。

    我们有大量未实现收益可利用，因此如果确实认为净收益很重要，我们可以定期在其中加入已实现收益。不过，请放心，我和查理绝不会抛售证券，因为抛售会影响我们即将报告的净利润，而且我们都对"玩数字游戏"深恶痛绝。

    总体来看，虽然存在某些缺点，但是营业收入能合理指导我们的经营。不过，它忽视了我们的净利润数字。法规要求我们向你们报告这个数字，但是，如果报告者强调这一点，则说明他们的业绩比我们的好。

    我们的帐面价值计算全面反映了已实现和未实现收益与亏损。你们应该注意度量标准和营业收入过程的变化。

    此外，我要指出，净利润报告变幻莫测。假如出卖股权的终止日期定在2010年6月30日，那一天，我们必须向交易对方支付64亿美元。证券价格通常会在下个季度上涨，使相应数字在9月30日下降至58亿美元。然而，我们用于评估这些合约的布莱克—斯科尔斯期权定价公式要求我们，在此期间增加资产负债表上的89亿美元负债至96亿美元，这一更改在应计税生效之后降低了4.55亿美元本季度净利润。

    我和查理都认为，在评估长期期权时，布莱克—斯科尔斯期权定价公式产生了非常不相称的数值。两年前，我们通过签订股票买卖合同含蓄地宣称，我们的交易对手或其客户采用的布莱克—斯科尔斯期权定价公式运算有缺点。

    但是，我们继续采用这个公式呈报财务报表，因为布莱克—斯科尔斯是公认的期权估价标准，几乎所有顶级商学院都开设这个课程。我们不得不按它计算，否则会受到指责，还会给审计带来难以解决的问题。因为我们的交易对手也采用此公式，如果双方的评估方法相差太大，审计就无法证明他们与我们评估的精确度。

    审计和监管者借助于该定价公式的部分原因是它能提供精确的数字。我和查理认为，我们合同的实际负债远低于按该公式计算所得数值，但是我们拿不出准确的数字——我们提供的数字不可能比为政府雇员保险公司（GEICO）、伯灵顿北方圣菲铁路运输公司（BNSF）或伯克希尔哈撒韦公司提供的数值更精确。对此，我们并不担心，因为近似的正确好过精确的错误。

    约翰肯尼思曾经俏皮地评论，经济学家最节省观点：他们在研究院学到的观点能用一辈子。上世纪七、八十年代，各大学金融系几乎都固执地坚持有效市场理论，轻蔑地称驳倒这一理论的有力事实为"反常现象"。（我一直喜欢这种解释："地平说学会"（The Flat Earth Society）可能认为轮船环游地球令人讨厌、不合逻辑且不正常。）

    我们需要重新审视大学教师把布莱克—斯科尔斯公式作为披露真相的现行方法来教授，也要重新审视大学教师详述期权定价的倾向。即使没有丝毫评价期权的能力，你一样可以成为非常成功的投资者。学生们应该学习的是如何评价一个企业，那才是与投资相关的一切。

 

    别迷恋杠杆收益

 

    毫无疑问，有些人通过借钱投资成为巨富，但此类操作同样可能使你一贫如洗。杠杆操作成功的时候，你的收益成倍放大，配偶觉得你很聪明，邻居也艳羡不已。但它会使人上瘾，一旦你从中获益，就很难回到谨慎行事的老路上去。而我们在三年级（有些人在2008年金融危机中）都学到，不管多大的数字一旦乘以0都会化为乌有。历史表明，无论操作者多么聪明，金融杠杆都很可能带来"0"。

    对企业来说，金融杠杆也可能是致命的。许多负债累累的公司认为债务到期时可以靠继续融资解决，这种假定通常是正常的。可一旦企业本身或者全球信用出现危机，到期债务就必须如约清偿，届时只有现金才靠得住。

信贷就像氧气，供应充沛时，人们甚至不会加以注意。而一旦氧气或信贷紧缺，那就成了头等危机。即使短暂的信贷危机也可能使企业崩溃，事实上，2008年9月一夜之间席卷多个经济部门的信贷危机使整个美国都濒临崩溃。

    我和查理芒格不会从事任何可能给伯克希尔带来丝毫威胁的活动。（我们俩加起来已经167岁，可不想"从头再来"。）我们永远铭记在心：你们，也就是我们的合伙人往往将毕生积蓄的很大一部分投入到本公司，信赖我们的谨慎管理。此外，一些重要的慈善活动也依赖于我们的审慎决定。最后，许多因事故致残的受害人依赖于我们的保险服务。如果为了追求额外的一点利润而使这么多人面临风险，那将是不负责任的。

    我们伯克希尔公司承诺，将始终维持最少100亿美元的现金储备，为此我们通常都持有最少200亿美元现金。如此我们既可以承受前所未有的保险偿付（迄今为止最大的一笔保险偿付是因卡特里娜飓风带来的，高达30亿美元，对保险业来说是最昂贵的一次灾害），还能抓住收购或投资机会，即使金融危机也不会影响我们。

    我们的现金主要以美国国库券形式存在，而避免持有利率略高几个基点的其他短期证券。商业债券和货币市场基金的脆弱性在2008年9月毕露无疑，而我们在此之前就长期坚持上述原则。

    此外，伯克希尔过去40年来从未分红或回购股票，我们将所有的盈利都用于强化业务，现在月度盈利已超过10亿美元。在这40年中，我们的净资产从4800万美元增长至1570亿美元，没有任何其他美国公司像我们这样重视财务实力。

    由于我们对利用金融杠杆持谨慎态度，我们的回报率略受影响，但拥有大量现金使我们得以安枕无忧。在偶尔爆发的经济危机中，其他公司都为生存而挣扎，而我们拥有充沛资金和精神准备去发动攻势。2008年雷曼兄弟破产后市场一片恐慌，而我们得以在25天内投资了156亿美元。

 英文版地址：http://www.berkshirehathaway.com/letters/2010ltr.pdf

 

（博客编辑：等待）

 

中道巴菲特俱乐部郑重声明：专栏文章仅代表作者个人观点。刊载此文不代表同意其说法，不构成任何投资建议。投资者据此操作，风险自担。如果您发现本专栏有侵犯您的知识产权的文章，请联系我们 ，我们会删除该文章。转载本专栏文章、图片，请注明出处。

http://blog.sina.com.cn/s/blog_5d6e195f0100pjte.html

Berkshire's Corporate Performance vs. the S&P 500

Annual Percentage Change

Year

in Per-Share

Book Value of

Berkshire

(1)

in S&P 500

with Dividends

Included

(2)

Relative

Results

(1)-(2)

1965 ................................................... 23.8 10.0 13.8

1966 ................................................... 20.3 (11.7) 32.0

1967 ................................................... 11.0 30.9 (19.9)

1968 ................................................... 19.0 11.0 8.0

1969 ................................................... 16.2 (8.4) 24.6

1970 ................................................... 12.0 3.9 8.1

1971 ................................................... 16.4 14.6 1.8

1972 ................................................... 21.7 18.9 2.8

1973 ................................................... 4.7 (14.8) 19.5

1974 ................................................... 5.5 (26.4) 31.9

1975 ................................................... 21.9 37.2 (15.3)

1976 ................................................... 59.3 23.6 35.7

1977 ................................................... 31.9 (7.4) 39.3

1978 ................................................... 24.0 6.4 17.6

1979 ................................................... 35.7 18.2 17.5

1980 ................................................... 19.3 32.3 (13.0)

1981 ................................................... 31.4 (5.0) 36.4

1982 ................................................... 40.0 21.4 18.6

1983 ................................................... 32.3 22.4 9.9

1984 ................................................... 13.6 6.1 7.5

1985 ................................................... 48.2 31.6 16.6

1986 ................................................... 26.1 18.6 7.5

1987 ................................................... 19.5 5.1 14.4

1988 ................................................... 20.1 16.6 3.5

1989 ................................................... 44.4 31.7 12.7

1990 ................................................... 7.4 (3.1) 10.5

1991 ................................................... 39.6 30.5 9.1

1992 ................................................... 20.3 7.6 12.7

1993 ................................................... 14.3 10.1 4.2

1994 ................................................... 13.9 1.3 12.6

1995 ................................................... 43.1 37.6 5.5

1996 ................................................... 31.8 23.0 8.8

1997 ................................................... 34.1 33.4 .7

1998 ................................................... 48.3 28.6 19.7

1999 ................................................... .5 21.0 (20.5)

2000 ................................................... 6.5 (9.1) 15.6

2001 ................................................... (6.2) (11.9) 5.7

2002 ................................................... 10.0 (22.1) 32.1

2003 ................................................... 21.0 28.7 (7.7)

2004 ................................................... 10.5 10.9 (.4)

2005 ................................................... 6.4 4.9 1.5

2006 ................................................... 18.4 15.8 2.6

2007 ................................................... 11.0 5.5 5.5

2008 ................................................... (9.6) (37.0) 27.4

2009 ................................................... 19.8 26.5 (6.7)

2010 ................................................... 13.0 15.1 (2.1)

Compounded Annual Gain – 1965-2010 ....................... 20.2% 9.4% 10.8

Overall Gain – 1964-2010 .................................. 490,409% 6,262%

Notes: Data are for calendar years with these exceptions: 1965 and 1966, year ended 9/30; 1967, 15 months ended

12/31.

Starting in 1979, accounting rules required insurance companies to value the equity securities they hold at market

rather than at the lower of cost or market, which was previously the requirement. In this table, Berkshire's results

through 1978 have been restated to conform to the changed rules. In all other respects, the results are calculated using

the numbers originally reported.

The S&P 500 numbers are pre-tax whereas the Berkshire numbers are after-tax. If a corporation such as Berkshire

were simply to have owned the S&P 500 and accrued the appropriate taxes, its results would have lagged the S&P 500

in years when that index showed a positive return, but would have exceeded the S&P 500 in years when the index

showed a negative return. Over the years, the tax costs would have caused the aggregate lag to be substantial.

2BERKSHIRE HATHAWAY INC.

To the Shareholders of Berkshire Hathaway Inc.:

The per-share book value of both our Class A and Class B stock increased by 13% in 2010. Over the

last 46 years (that is, since present management took over), book value has grown from $19 to $95,453, a rate of

20.2% compounded annually.*

The highlight of 2010 was our acquisition of Burlington Northern Santa Fe, a purchase that's working

out even better than I expected. It now appears that owning this railroad will increase Berkshire's "normal"

earning power by nearly 40% pre-tax and by well over 30% after-tax. Making this purchase increased our share

count by 6% and used $22 billion of cash. Since we've quickly replenished the cash, the economics of this

transaction have turned out very well.

A "normal year," of course, is not something that either Charlie Munger, Vice Chairman of Berkshire

and my partner, or I can define with anything like precision. But for the purpose of estimating our current earning

power, we are envisioning a year free of a mega-catastrophe in insurance and possessing a general business

climate somewhat better than that of 2010 but weaker than that of 2005 or 2006. Using these assumptions, and

several others that I will explain in the "Investment" section, I can estimate that the normal earning power of the

assets we currently own is about $17 billion pre-tax and $12 billion after-tax, excluding any capital gains or

losses. Every day Charlie and I think about how we can build on this base.

Both of us are enthusiastic about BNSF's future because railroads have major cost and environmental

advantages over trucking, their main competitor. Last year BNSF moved each ton of freight it carried a record

500 miles on a single gallon of diesel fuel. That's three times more fuel-efficient than trucking is, which means

our railroad owns an important advantage in operating costs. Concurrently, our country gains because of reduced

greenhouse emissions and a much smaller need for imported oil. When traffic travels by rail, society benefits.

Over time, the movement of goods in the United States will increase, and BNSF should get its full

share of the gain. The railroad will need to invest massively to bring about this growth, but no one is better

situated than Berkshire to supply the funds required. However slow the economy, or chaotic the markets, our

checks will clear.

Last year – in the face of widespread pessimism about our economy – we demonstrated our enthusiasm

for capital investment at Berkshire by spending $6 billion on property and equipment. Of this amount,

$5.4 billion – or 90% of the total – was spent in the United States. Certainly our businesses will expand abroad in

the future, but an overwhelming part of their future investments will be at home. In 2011, we will set a new

record for capital spending – $8 billion – and spend all of the $2 billion increase in the United States.

Money will always flow toward opportunity, and there is an abundance of that in America.

Commentators today often talk of "great uncertainty." But think back, for example, to December 6,

1941, October 18, 1987 and September 10, 2001. No matter how serene today may be, tomorrow is always

uncertain.

* All per-share figures used in this report apply to Berkshire's A shares. Figures for the B shares are

1/1500

th

of those shown for A.

3Don't let that reality spook you. Throughout my lifetime, politicians and pundits have constantly

moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than

when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential

is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders

for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and

effective.

We are not natively smarter than we were when our country was founded nor do we work harder. But

look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and

1941, America's best days lie ahead.

Performance

Charlie and I believe that those entrusted with handling the funds of others should establish

performance goals at the onset of their stewardship. Lacking such standards, managements are tempted to shoot

the arrow of performance and then paint the bull's-eye around wherever it lands.

In Berkshire's case, we long ago told you that our job is to increase per-share intrinsic value at a rate

greater than the increase (including dividends) of the S&P 500. In some years we succeed; in others we fail. But,

if we are unable over time to reach that goal, we have done nothing for our investors, who by themselves could

have realized an equal or better result by owning an index fund.

The challenge, of course, is the calculation of intrinsic value. Present that task to Charlie and me

separately, and you will get two different answers. Precision just isn't possible.

To eliminate subjectivity, we therefore use an understated proxy for intrinsic-value – book value –

when measuring our performance. To be sure, some of our businesses are worth far more than their carrying

value on our books. (Later in this report, we'll present a case study.) But since that premium seldom swings

wildly from year to year, book value can serve as a reasonable device for tracking how we are doing.

The table on page 2 shows our 46-year record against the S&P, a performance quite good in the earlier

years and now only satisfactory. The bountiful years, we want to emphasize, will never return. The huge sums of

capital we currently manage eliminate any chance of exceptional performance. We will strive, however, for

better-than-average results and feel it fair for you to hold us to that standard.

Yearly figures, it should be noted, are neither to be ignored nor viewed as all-important. The pace of

the earth's movement around the sun is not synchronized with the time required for either investment ideas or

operating decisions to bear fruit. At GEICO, for example, we enthusiastically spent $900 million last year on

advertising to obtain policyholders who deliver us no immediate profits. If we could spend twice that amount

productively, we would happily do so though short-term results would be further penalized. Many large

investments at our railroad and utility operations are also made with an eye to payoffs well down the road.

To provide you a longer-term perspective on performance, we present on the facing page the yearly

figures from page 2 recast into a series of five-year periods. Overall, there are 42 of these periods, and they tell

an interesting story. On a comparative basis, our best years ended in the early 1980s. The market's golden period,

however, came in the 17 following years, with Berkshire achieving stellar absolute returns even as our relative

advantage narrowed.

After 1999, the market stalled (or have you already noticed that?). Consequently, the satisfactory

performance relative to the S&P that Berkshire has achieved since then has delivered only moderate absolute

results.

Looking forward, we hope to average several points better than the S&P – though that result is, of

course, far from a sure thing. If we succeed in that aim, we will almost certainly produce better relative results in

bad years for the stock market and suffer poorer results in strong markets.

4Berkshire's Corporate Performance vs. the S&P 500 by Five-Year Periods

Annual Percentage Change

Five-Year Period

in Per-Share

Book Value of

Berkshire

(1)

in S&P 500

with Dividends

Included

(2)

Relative

Results

(1)-(2)

1965-1969 ............................................... 17.2 5.0 12.2

1966-1970 ............................................... 14.7 3.9 10.8

1967-1971 ............................................... 13.9 9.2 4.7

1968-1972 ............................................... 16.8 7.5 9.3

1969-1973 ............................................... 17.7 2.0 15.7

1970-1974 ............................................... 15.0 (2.4) 17.4

1971-1975 ............................................... 13.9 3.2 10.7

1972-1976 ............................................... 20.8 4.9 15.9

1973-1977 ............................................... 23.4 (0.2) 23.6

1974-1978 ............................................... 24.4 4.3 20.1

1975-1979 ............................................... 30.1 14.7 15.4

1976-1980 ............................................... 33.4 13.9 19.5

1977-1981 ............................................... 29.0 8.1 20.9

1978-1982 ............................................... 29.9 14.1 15.8

1979-1983 ............................................... 31.6 17.3 14.3

1980-1984 ............................................... 27.0 14.8 12.2

1981-1985 ............................................... 32.6 14.6 18.0

1982-1986 ............................................... 31.5 19.8 11.7

1983-1987 ............................................... 27.4 16.4 11.0

1984-1988 ............................................... 25.0 15.2 9.8

1985-1989 ............................................... 31.1 20.3 10.8

1986-1990 ............................................... 22.9 13.1 9.8

1987-1991 ............................................... 25.4 15.3 10.1

1988-1992 ............................................... 25.6 15.8 9.8

1989-1993 ............................................... 24.4 14.5 9.9

1990-1994 ............................................... 18.6 8.7 9.9

1991-1995 ............................................... 25.6 16.5 9.1

1992-1996 ............................................... 24.2 15.2 9.0

1993-1997 ............................................... 26.9 20.2 6.7

1994-1998 ............................................... 33.7 24.0 9.7

1995-1999 ............................................... 30.4 28.5 1.9

1996-2000 ............................................... 22.9 18.3 4.6

1997-2001 ............................................... 14.8 10.7 4.1

1998-2002 ............................................... 10.4 (0.6) 11.0

1999-2003 ............................................... 6.0 (0.6) 6.6

2000-2004 ............................................... 8.0 (2.3) 10.3

2001-2005 ............................................... 8.0 0.6 7.4

2002-2006 ............................................... 13.1 6.2 6.9

2003-2007 ............................................... 13.3 12.8 0.5

2004-2008 ............................................... 6.9 (2.2) 9.1

2005-2009 ............................................... 8.6 0.4 8.2

2006-2010 ............................................... 10.0 2.3 7.7

Notes: The first two periods cover the five years beginning September 30 of the previous year. The third period covers

63 months beginning September 30, 1966 to December 31, 1971. All other periods involve calendar years.

The other notes on page 2 also apply to this table.

5Intrinsic Value – Today and Tomorrow

Though Berkshire's intrinsic value cannot be precisely calculated, two of its three key pillars can be

measured. Charlie and I rely heavily on these measurements when we make our own estimates of Berkshire's

value.

The first component of value is our investments: stocks, bonds and cash equivalents. At yearend these

totaled $158 billion at market value.

Insurance float – money we temporarily hold in our insurance operations that does not belong to us –

funds $66 billion of our investments. This float is "free" as long as insurance underwriting breaks even, meaning

that the premiums we receive equal the losses and expenses we incur. Of course, underwriting results are volatile,

swinging erratically between profits and losses. Over our entire history, though, we've been significantly

profitable, and I also expect us to average breakeven results or better in the future. If we do that, all of our

investments – those funded both by float and by retained earnings – can be viewed as an element of value for

Berkshire shareholders.

Berkshire's second component of value is earnings that come from sources other than investments and

insurance underwriting. These earnings are delivered by our 68 non-insurance companies, itemized on page 106.

In Berkshire's early years, we focused on the investment side. During the past two decades, however, we've

increasingly emphasized the development of earnings from non-insurance businesses, a practice that will

continue.

The following tables illustrate this shift. In the first table, we present per-share investments at decade

intervals beginning in 1970, three years after we entered the insurance business. We exclude those investments

applicable to minority interests.

Yearend

Per-Share

Investments Period

Compounded Annual Increase

in Per-Share Investments

1970 ................... $ 66

1980 ................... 754 1970-1980 27.5%

1990 ................... 7,798 1980-1990 26.3%

2000 ................... 50,229 1990-2000 20.5%

2010 ................... 94,730 2000-2010 6.6%

Though our compounded annual increase in per-share investments was a healthy 19.9% over the

40-year period, our rate of increase has slowed sharply as we have focused on using funds to buy operating

businesses.

The payoff from this shift is shown in the following table, which illustrates how earnings of our

non-insurance businesses have increased, again on a per-share basis and after applicable minority interests.

Year

Per-Share

Pre-Tax Earnings Period

Compounded Annual Increase in

Per-Share Pre-Tax Earnings

1970 ............ $ 2.87

1980 ............ 19.01 1970-1980 20.8%

1990 ............ 102.58 1980-1990 18.4%

2000 ............ 918.66 1990-2000 24.5%

2010 ............ 5,926.04 2000-2010 20.5%

6For the forty years, our compounded annual gain in pre-tax, non-insurance earnings per share is 21.0%.

During the same period, Berkshire's stock price increased at a rate of 22.1% annually. Over time, you can expect

our stock price to move in rough tandem with Berkshire's investments and earnings. Market price and intrinsic

value often follow very different paths – sometimes for extended periods – but eventually they meet.

There is a third, more subjective, element to an intrinsic value calculation that can be either positive or

negative: the efficacy with which retained earnings will be deployed in the future. We, as well as many other

businesses, are likely to retain earnings over the next decade that will equal, or even exceed, the capital we presently

employ. Some companies will turn these retained dollars into fifty-cent pieces, others into two-dollar bills.

This "what-will-they-do-with-the-money" factor must always be evaluated along with the

"what-do-we-have-now" calculation in order for us, or anybody, to arrive at a sensible estimate of a company's

intrinsic value. That's because an outside investor stands by helplessly as management reinvests his share of the

company's earnings. If a CEO can be expected to do this job well, the reinvestment prospects add to the

company's current value; if the CEO's talents or motives are suspect, today's value must be discounted. The

difference in outcome can be huge. A dollar of then-value in the hands of Sears Roebuck's or Montgomery

Ward's CEOs in the late 1960s had a far different destiny than did a dollar entrusted to Sam Walton.

************

Charlie and I hope that the per-share earnings of our non-insurance businesses continue to increase at a

decent rate. But the job gets tougher as the numbers get larger. We will need both good performance from our

current businesses and more major acquisitions. We're prepared. Our elephant gun has been reloaded, and my

trigger finger is itchy.

Partially offsetting our anchor of size are several important advantages we have. First, we possess a

cadre of truly skilled managers who have an unusual commitment to their own operations and to Berkshire.

Many of our CEOs are independently wealthy and work only because they love what they do. They are

volunteers, not mercenaries. Because no one can offer them a job they would enjoy more, they can't be lured

away.

At Berkshire, managers can focus on running their businesses: They are not subjected to meetings at

headquarters nor financing worries nor Wall Street harassment. They simply get a letter from me every two years

(it's reproduced on pages 104-105) and call me when they wish. And their wishes do differ: There are managers

to whom I have not talked in the last year, while there is one with whom I talk almost daily. Our trust is in people

rather than process. A "hire well, manage little" code suits both them and me.

Berkshire's CEOs come in many forms. Some have MBAs; others never finished college. Some use

budgets and are by-the-book types; others operate by the seat of their pants. Our team resembles a baseball squad

composed of all-stars having vastly different batting styles. Changes in our line-up are seldom required.

Our second advantage relates to the allocation of the money our businesses earn. After meeting the

needs of those businesses, we have very substantial sums left over. Most companies limit themselves to

reinvesting funds within the industry in which they have been operating. That often restricts them, however, to a

"universe" for capital allocation that is both tiny and quite inferior to what is available in the wider world.

Competition for the few opportunities that are available tends to become fierce. The seller has the upper hand, as

a girl might if she were the only female at a party attended by many boys. That lopsided situation would be great

for the girl, but terrible for the boys.

At Berkshire we face no institutional restraints when we deploy capital. Charlie and I are limited only

by our ability to understand the likely future of a possible acquisition. If we clear that hurdle – and frequently we

can't – we are then able to compare any one opportunity against a host of others.

7When I took control of Berkshire in 1965, I didn't exploit this advantage. Berkshire was then only in

textiles, where it had in the previous decade lost significant money. The dumbest thing I could have done was to

pursue "opportunities" to improve and expand the existing textile operation – so for years that's exactly what I

did. And then, in a final burst of brilliance, I went out and bought another textile company. Aaaaaaargh!

Eventually I came to my senses, heading first into insurance and then into other industries.

There is even a supplement to this world-is-our-oyster advantage: In addition to evaluating the

attractions of one business against a host of others, we also measure businesses against opportunities available in

marketable securities, a comparison most managements don't make. Often, businesses are priced ridiculously

high against what can likely be earned from investments in stocks or bonds. At such moments, we buy securities

and bide our time.

Our flexibility in respect to capital allocation has accounted for much of our progress to date. We have

been able to take money we earn from, say, See's Candies or Business Wire (two of our best-run businesses, but

also two offering limited reinvestment opportunities) and use it as part of the stake we needed to buy BNSF.

Our final advantage is the hard-to-duplicate culture that permeates Berkshire. And in businesses,

culture counts.

To start with, the directors who represent you think and act like owners. They receive token

compensation: no options, no restricted stock and, for that matter, virtually no cash. We do not provide them

directors and officers liability insurance, a given at almost every other large public company. If they mess up

with your money, they will lose their money as well. Leaving my holdings aside, directors and their families own

Berkshire shares worth more than $3 billion. Our directors, therefore, monitor Berkshire's actions and results

with keen interest and an owner's eye. You and I are lucky to have them as stewards.

This same owner-orientation prevails among our managers. In many cases, these are people who have

sought out Berkshire as an acquirer for a business that they and their families have long owned. They came to us

with an owner's mindset, and we provide an environment that encourages them to retain it. Having managers

who love their businesses is no small advantage.

Cultures self-propagate. Winston Churchill once said, "You shape your houses and then they shape

you." That wisdom applies to businesses as well. Bureaucratic procedures beget more bureaucracy, and imperial

corporate palaces induce imperious behavior. (As one wag put it, "You know you're no longer CEO when you

get in the back seat of your car and it doesn't move.") At Berkshire's "World Headquarters" our annual rent is

$270,212. Moreover, the home-office investment in furniture, art, Coke dispenser, lunch room, high-tech

equipment – you name it – totals $301,363. As long as Charlie and I treat your money as if it were our own,

Berkshire's managers are likely to be careful with it as well.

Our compensation programs, our annual meeting and even our annual reports are all designed with an

eye to reinforcing the Berkshire culture, and making it one that will repel and expel managers of a different bent.

This culture grows stronger every year, and it will remain intact long after Charlie and I have left the scene.

We will need all of the strengths I've just described to do reasonably well. Our managers will deliver;

you can count on that. But whether Charlie and I can hold up our end in capital allocation depends in part on the

competitive environment for acquisitions. You will get our best efforts.

GEICO

Now let me tell you a story that will help you understand how the intrinsic value of a business can far

exceed its book value. Relating this tale also gives me a chance to relive some great memories.

Sixty years ago last month, GEICO entered my life, destined to shape it in a huge way. I was then a

20-year-old graduate student at Columbia, having elected to go there because my hero, Ben Graham, taught a

once-a-week class at the school.

8One day at the library, I checked out Ben's entry in Who's Who in America and found he was

chairman of Government Employees Insurance Co. (now called GEICO). I knew nothing of insurance and had

never heard of the company. The librarian, however, steered me to a large compendium of insurers and, after

reading the page on GEICO, I decided to visit the company. The following Saturday, I boarded an early train for

Washington.

Alas, when I arrived at the company's headquarters, the building was closed. I then rather frantically

started pounding on a door, until finally a janitor appeared. I asked him if there was anyone in the office I could

talk to, and he steered me to the only person around, Lorimer Davidson.

That was my lucky moment. During the next four hours, "Davy" gave me an education about both

insurance and GEICO. It was the beginning of a wonderful friendship. Soon thereafter, I graduated from

Columbia and became a stock salesman in Omaha. GEICO, of course, was my prime recommendation, which got

me off to a great start with dozens of customers. GEICO also jump-started my net worth because, soon after

meeting Davy, I made the stock 75% of my $9,800 investment portfolio. (Even so, I felt over-diversified.)

Subsequently, Davy became CEO of GEICO, taking the company to undreamed-of heights before it got

into trouble in the mid-1970s, a few years after his retirement. When that happened – with the stock falling by

more than 95% – Berkshire bought about one-third of the company in the market, a position that over the years

increased to 50% because of GEICO's repurchases of its own shares. Berkshire's cost for this half of the business

was $46 million. (Despite the size of our position, we exercised no control over operations.)

We then purchased the remaining 50% of GEICO at the beginning of 1996, which spurred Davy, at 95,

to make a video tape saying how happy he was that his beloved GEICO would permanently reside with

Berkshire. (He also playfully concluded with, "Next time, Warren, please make an appointment.")

A lot has happened at GEICO during the last 60 years, but its core goal – saving Americans substantial

money on their purchase of auto insurance – remains unchanged. (Try us at 1-800-847-7536 or

www.GEICO.com.) In other words, get the policyholder's business by deserving his business. Focusing on this

objective, the company has grown to be America's third-largest auto insurer, with a market share of 8.8%.

When Tony Nicely, GEICO's CEO, took over in 1993, that share was 2.0%, a level at which it had

been stuck for more than a decade. GEICO became a different company under Tony, finding a path to consistent

growth while simultaneously maintaining underwriting discipline and keeping its costs low.

Let me quantify Tony's achievement. When, in 1996, we bought the 50% of GEICO we didn't already

own, it cost us about $2.3 billion. That price implied a value of $4.6 billion for 100%. GEICO then had tangible

net worth of $1.9 billion.

The excess over tangible net worth of the implied value – $2.7 billion – was what we estimated

GEICO's "goodwill" to be worth at that time. That goodwill represented the economic value of the policyholders

who were then doing business with GEICO. In 1995, those customers had paid the company $2.8 billion in

premiums. Consequently, we were valuing GEICO's customers at about 97% (2.7/2.8) of what they were

annually paying the company. By industry standards, that was a very high price. But GEICO was no ordinary

insurer: Because of the company's low costs, its policyholders were consistently profitable and unusually loyal.

Today, premium volume is $14.3 billion and growing. Yet we carry the goodwill of GEICO on our

books at only $1.4 billion, an amount that will remain unchanged no matter how much the value of GEICO

increases. (Under accounting rules, you write down the carrying value of goodwill if its economic value

decreases, but leave it unchanged if economic value increases.) Using the 97%-of-premium-volume yardstick we

applied to our 1996 purchase, the real value today of GEICO's economic goodwill is about $14 billion. And this

value is likely to be much higher ten and twenty years from now. GEICO – off to a strong start in 2011 – is the

gift that keeps giving.

9One not-so-small footnote: Under Tony, GEICO has developed one of the country's largest personallines insurance agencies, which primarily sells homeowners policies to our GEICO auto insurance customers. In

this business, we represent a number of insurers that are not affiliated with us. They take the risk; we simply sign

up the customers. Last year we sold 769,898 new policies at this agency operation, up 34% from the year before.

The obvious way this activity aids us is that it produces commission revenue; equally important is the fact that it

further strengthens our relationship with our policyholders, helping us retain them.

I owe an enormous debt to Tony and Davy (and, come to think of it, to that janitor as well).

************

Now, let's examine the four major sectors of Berkshire. Each has vastly different balance sheet and

income characteristics from the others. Lumping them together therefore impedes analysis. So we'll present them

as four separate businesses, which is how Charlie and I view them.

We will look first at insurance, Berkshire's core operation and the engine that has propelled our

expansion over the years.

Insurance

Property-casualty ("P/C") insurers receive premiums upfront and pay claims later. In extreme cases,

such as those arising from certain workers' compensation accidents, payments can stretch over decades. This

collect-now, pay-later model leaves us holding large sums – money we call "float" – that will eventually go to

others. Meanwhile, we get to invest this float for Berkshire's benefit. Though individual policies and claims

come and go, the amount of float we hold remains remarkably stable in relation to premium volume.

Consequently, as our business grows, so does our float. And how we have grown: Just take a look at the

following table:

Yearend

Float

(in $ millions)

1970 ........................................ $ 39

1980 ........................................ 237

1990 ........................................ 1,632

2000 ........................................ 27,871

2010 ........................................ 65,832

If our premiums exceed the total of our expenses and eventual losses, we register an underwriting profit

that adds to the investment income that our float produces. When such a profit occurs, we enjoy the use of free

money – and, better yet, get paid for holding it. Alas, the wish of all insurers to achieve this happy result creates

intense competition, so vigorous in most years that it causes the P/C industry as a whole to operate at a

significant underwriting loss. This loss, in effect, is what the industry pays to hold its float. For example, State

Farm, by far the country's largest insurer and a well-managed company, has incurred an underwriting loss in

seven of the last ten years. During that period, its aggregate underwriting loss was more than $20 billion.

At Berkshire, we have now operated at an underwriting profit for eight consecutive years, our total

underwriting gain for the period having been $17 billion. I believe it likely that we will continue to underwrite

profitably in most – though certainly not all – future years. If we accomplish that, our float will be better than

cost-free. We will benefit just as we would if some party deposited $66 billion with us, paid us a fee for holding

its money and then let us invest its funds for our own benefit.

10Let me emphasize again that cost-free float is not an outcome to be expected for the P/C industry as a

whole: In most years, industry premiums have been inadequate to cover claims plus expenses. Consequently, the

industry's overall return on tangible equity has for many decades fallen far short of the average return realized by

American industry, a sorry performance almost certain to continue. Berkshire's outstanding economics exist only

because we have some terrific managers running some unusual businesses. We've already told you about GEICO,

but we have two other very large operations, and a bevy of smaller ones as well, each a star in its own way.

************

First off is the Berkshire Hathaway Reinsurance Group, run by Ajit Jain. Ajit insures risks that no one

else has the desire or the capital to take on. His operation combines capacity, speed, decisiveness and, most

importantly, brains in a manner that is unique in the insurance business. Yet he never exposes Berkshire to risks

that are inappropriate in relation to our resources. Indeed, we are far more conservative than most large insurers

in that respect. In the past year, Ajit has significantly increased his life reinsurance operation, developing annual

premium volume of about $2 billion that will repeat for decades.

From a standing start in 1985, Ajit has created an insurance business with float of $30 billion and

significant underwriting profits, a feat that no CEO of any other insurer has come close to matching. By his

accomplishments, he has added a great many billions of dollars to the value of Berkshire. Even kryptonite

bounces off Ajit.

************

We have another insurance powerhouse in General Re, managed by Tad Montross.

At bottom, a sound insurance operation requires four disciplines: (1) An understanding of all exposures

that might cause a policy to incur losses; (2) A conservative evaluation of the likelihood of any exposure actually

causing a loss and the probable cost if it does; (3) The setting of a premium that will deliver a profit, on average,

after both prospective loss costs and operating expenses are covered; and (4) The willingness to walk away if the

appropriate premium can't be obtained.

Many insurers pass the first three tests and flunk the fourth. The urgings of Wall Street, pressures from

the agency force and brokers, or simply a refusal by a testosterone-driven CEO to accept shrinking volumes has

led too many insurers to write business at inadequate prices. "The other guy is doing it so we must as well" spells

trouble in any business, but none more so than insurance.

Tad has observed all four of the insurance commandments, and it shows in his results. General Re's huge

float has been better than cost-free under his leadership, and we expect that, on average, it will continue to be.

************

Finally, we own a group of smaller companies, most of them specializing in odd corners of the

insurance world. In aggregate, their results have consistently been profitable and, as the table below shows, the

float they provide us is substantial. Charlie and I treasure these companies and their managers.

Here is the record of all four segments of our property-casualty and life insurance businesses:

Underwriting Profit Yearend Float

(in millions)

Insurance Operations 2010 2009 2010 2009

General Re ...................... $ 452 $ 477 $20,049 $21,014

BH Reinsurance .................. 176 250 30,370 27,753

GEICO ......................... 1,117 649 10,272 9,613

Other Primary ................... 268 84 5,141 5,061

$2,013 $1,460 $65,832 $63,441

Among large insurance operations, Berkshire's impresses me as the best in the world.

11Manufacturing, Service and Retailing Operations

Our activities in this part of Berkshire cover the waterfront. Let's look, though, at a summary balance

sheet and earnings statement for the entire group.

Balance Sheet 12/31/10 (in millions)

Assets

Cash and equivalents ................. $ 2,673

Accounts and notes receivable .......... 5,396

Inventory .......................... 7,101

Other current assets .................. 550

Total current assets ................... 15,720

Goodwill and other intangibles ......... 16,976

Fixed assets ........................ 15,421

Other assets ........................ 3,029

$51,146

Liabilities and Equity

Notes payable ....................... $ 1,805

Other current liabilities ............... 8,169

Total current liabilities ................ 9,974

Deferred taxes ...................... 3,001

Term debt and other liabilities .......... 6,621

Equity ............................. 31,550

$51,146

Earnings Statement (in millions)

2010 2009 2008

Revenues ......................................................... $66,610 $61,665 $66,099

Operating expenses (including depreciation of $1,362 in 2010, $1,422 in 2009

and $1,280 in 2008) ............................................... 62,225 59,509 61,937

Interest expense .................................................... 111 98 139

Pre-tax earnings .................................................... 4,274* 2,058* 4,023*

Income taxes and non-controlling interests ............................... 1,812 945 1,740

Net earnings ....................................................... $ 2,462 $ 1,113 $ 2,283

*Does not include purchase-accounting adjustments.

This group of companies sells products ranging from lollipops to jet airplanes. Some of the businesses

enjoy terrific economics, measured by earnings on unleveraged net tangible assets that run from 25% after-tax to

more than 100%. Others produce good returns in the area of 12-20%. Unfortunately, a few have very poor

returns, a result of some serious mistakes I have made in my job of capital allocation. These errors came about

because I misjudged either the competitive strength of the business I was purchasing or the future economics of

the industry in which it operated. I try to look out ten or twenty years when making an acquisition, but sometimes

my eyesight has been poor.

Most of the companies in this section improved their earnings last year and four set records. Let's look

first at the record-breakers.

• TTI, our electronic components distributor, had sales 21% above its previous high (recorded in 2008)

and pre-tax earnings that topped its earlier record by 58%. Its sales gains spanned three continents, with

North America at 16%, Europe at 26%, and Asia at 50%. The thousands of items TTI distributes are

pedestrian, many selling for less than a dollar. The magic of TTI's exceptional performance is created

by Paul Andrews, its CEO, and his associates.

12• Forest River, our RV and boat manufacturer, had record sales of nearly $2 billion and record earnings

as well. Forest River has 82 plants, and I have yet to visit one (or the home office, for that matter).

There's no need; Pete Liegl, the company's CEO, runs a terrific operation. Come view his products at

the annual meeting. Better yet, buy one.

• CTB, our farm-equipment company, again set an earnings record. I told you in the 2008 Annual Report

about Vic Mancinelli, the company's CEO. He just keeps getting better. Berkshire paid $140 million

for CTB in 2002. It has since paid us dividends of $160 million and eliminated $40 million of debt.

Last year it earned $106 million pre-tax. Productivity gains have produced much of this increase. When

we bought CTB, sales per employee were $189,365; now they are $405,878.

• Would you believe shoes? H. H. Brown, run by Jim Issler and best known for its Born brand, set a new

record for sales and earnings (helped by its selling 1,110 pairs of shoes at our annual meeting). Jim has

brilliantly adapted to major industry changes. His work, I should mention, is overseen by Frank

Rooney, 89, a superb businessman and still a dangerous fellow with whom to have a bet on the golf

course.

A huge story in this sector's year-to-year improvement occurred at NetJets. I can't overstate the

breadth and importance of Dave Sokol's achievements at this company, the leading provider of fractional

ownership of jet airplanes. NetJets has long been an operational success, owning a 2010 market share five times

that of its nearest competitor. Our overwhelming leadership stems from a wonderful team of pilots, mechanics

and service personnel. This crew again did its job in 2010, with customer satisfaction, as delineated in our regular

surveys, hitting new highs.

Even though NetJets was consistently a runaway winner with customers, our financial results, since its

acquisition in 1998, were a failure. In the 11 years through 2009, the company reported an aggregate pre-tax loss

of $157 million, a figure that was far understated since borrowing costs at NetJets were heavily subsidized by its

free use of Berkshire's credit. Had NetJets been operating on a stand-alone basis, its loss over the years would

have been several hundreds of millions greater.

We are now charging NetJets an appropriate fee for Berkshire's guarantee. Despite this fee (which

came to $38 million in 2010), NetJets earned $207 million pre-tax in 2010, a swing of $918 million from 2009.

Dave's quick restructuring of management and the company's rationalization of its purchasing and spending

policies has ended the hemorrhaging of cash and turned what was Berkshire's only major business problem into a

solidly profitable operation.

Dave has meanwhile maintained NetJets' industry-leading reputation for safety and service. In many

important ways, our training and operational standards are considerably stronger than those required by the FAA.

Maintaining top-of-the-line standards is the right thing to do, but I also have a selfish reason for championing this

policy. My family and I have flown more than 5,000 hours on NetJets (that's equal to being airborne 24 hours a

day for seven months) and will fly thousands of hours more in the future. We receive no special treatment and

have used a random mix of at least 100 planes and 300 crews. Whichever the plane or crew, we always know we

are flying with the best-trained pilots in private aviation.

The largest earner in our manufacturing, service and retailing sector is Marmon, a collection of 130

businesses. We will soon increase our ownership in this company to 80% by carrying out our scheduled purchase

of 17% of its stock from the Pritzker family. The cost will be about $1.5 billion. We will then purchase the

remaining Pritzker holdings in 2013 or 2014, whichever date is selected by the family. Frank Ptak runs Marmon

wonderfully, and we look forward to 100% ownership.

13Next to Marmon, the two largest earners in this sector are Iscar and McLane. Both had excellent years.

In 2010, Grady Rosier's McLane entered the wine and spirits distribution business to supplement its $32 billion

operation as a distributor of food products, cigarettes, candy and sundries. In purchasing Empire Distributors, an

operator in Georgia and North Carolina, we teamed up with David Kahn, the company's dynamic CEO. David is

leading our efforts to expand geographically. By yearend he had already made his first acquisition, Horizon Wine

and Spirits in Tennessee.

At Iscar, profits were up 159% in 2010, and we may well surpass pre-recession levels in 2011. Sales

are improving throughout the world, particularly in Asia. Credit Eitan Wertheimer, Jacob Harpaz and Danny

Goldman for an exceptional performance, one far superior to that of Iscar's main competitors.

All that is good news. Our businesses related to home construction, however, continue to struggle.

Johns Manville, MiTek, Shaw and Acme Brick have maintained their competitive positions, but their profits are

far below the levels of a few years ago. Combined, these operations earned $362 million pre-tax in 2010

compared to $1.3 billion in 2006, and their employment has fallen by about 9,400.

A housing recovery will probably begin within a year or so. In any event, it is certain to occur at some

point. Consequently: (1) At MiTek, we have made, or committed to, five bolt-on acquisitions during the past

eleven months; (2) At Acme, we just recently acquired the leading manufacturer of brick in Alabama for

$50 million; (3) Johns Manville is building a $55 million roofing membrane plant in Ohio, to be completed next

year; and (4) Shaw will spend $200 million in 2011 on plant and equipment, all of it situated in America. These

businesses entered the recession strong and will exit it stronger. At Berkshire, our time horizon is forever.

Regulated, Capital-Intensive Businesses

We have two very large businesses, BNSF and MidAmerican Energy, with important common

characteristics that distinguish them from our many others. Consequently, we give them their own sector in this

letter and split out their financial statistics in our GAAP balance sheet and income statement.

A key characteristic of both companies is the huge investment they have in very long-lived, regulated

assets, with these funded by large amounts of long-term debt that is not guaranteed by Berkshire. Our credit is

not needed: Both businesses have earning power that, even under very adverse business conditions, amply covers

their interest requirements. For example, in recessionary 2010 with BNSF's car loadings far off peak levels, the

company's interest coverage was 6:1.

Both companies are heavily regulated, and both will have a never-ending need to make major

investments in plant and equipment. Both also need to provide efficient, customer-satisfying service to earn the

respect of their communities and regulators. In return, both need to be assured that they will be allowed to earn

reasonable earnings on future capital investments.

Earlier I explained just how important railroads are to our country's future. Rail moves 42% of

America's inter-city freight, measured by ton-miles, and BNSF moves more than any other railroad – about 28%

of the industry total. A little math will tell you that more than 11% of all inter-city ton-miles of freight in the U.S.

is transported by BNSF. Given the shift of population to the West, our share may well inch higher.

All of this adds up to a huge responsibility. We are a major and essential part of the American

economy's circulatory system, obliged to constantly maintain and improve our 23,000 miles of track along with

its ancillary bridges, tunnels, engines and cars. In carrying out this job, we must anticipate society's needs, not

merely react to them. Fulfilling our societal obligation, we will regularly spend far more than our depreciation,

with this excess amounting to $2 billion in 2011. I'm confident we will earn appropriate returns on our huge

incremental investments. Wise regulation and wise investment are two sides of the same coin.

At MidAmerican, we participate in a similar "social compact." We are expected to put up everincreasing sums to satisfy the future needs of our customers. If we meanwhile operate reliably and efficiently, we

know that we will obtain a fair return on these investments.

14MidAmerican supplies 2.4 million customers in the U.S. with electricity, operating as the largest

supplier in Iowa, Wyoming and Utah and as an important provider in other states as well. Our pipelines transport

8% of the country's natural gas. Obviously, many millions of Americans depend on us every day.

MidAmerican has delivered outstanding results for both its owners (Berkshire's interest is 89.8%) and its

customers. Shortly after MidAmerican purchased Northern Natural Gas pipeline in 2002, that company's

performance as a pipeline was rated dead last, 43 out of 43, by the leading authority in the field. In the most recent

report published, Northern Natural was ranked second. The top spot was held by our other pipeline, Kern River.

In its electric business, MidAmerican has a comparable record. Iowa rates have not increased since we

purchased our operation there in 1999. During the same period, the other major electric utility in the state has

raised prices more than 70% and now has rates far above ours. In certain metropolitan areas in which the two

utilities operate side by side, electric bills of our customers run far below those of their neighbors. I am told that

comparable houses sell at higher prices in these cities if they are located in our service area.

MidAmerican will have 2,909 megawatts of wind generation in operation by the end of 2011, more

than any other regulated electric utility in the country. The total amount that MidAmerican has invested or

committed to wind is a staggering $5.4 billion. We can make this sort of investment because MidAmerican

retains all of its earnings, unlike other utilities that generally pay out most of what they earn.

As you can tell by now, I am proud of what has been accomplished for our society by Matt Rose at

BNSF and by David Sokol and Greg Abel at MidAmerican. I am also both proud and grateful for what they have

accomplished for Berkshire shareholders. Below are the relevant figures:

MidAmerican Earnings (in millions)

2010 2009

U.K. utilities ............................................................ $ 333 $ 248

Iowa utility ............................................................. 279 285

Western utilities ......................................................... 783 788

Pipelines ............................................................... 378 457

HomeServices ........................................................... 42 43

Other (net) .............................................................. 47 25

Operating earnings before corporate interest and taxes ........................... 1,862 1,846

Interest, other than to Berkshire ............................................. (323) (318)

Interest on Berkshire junior debt ............................................. (30) (58)

Income tax .............................................................. (271) (313)

Net earnings ............................................................. $1,238 $1,157

Earnings applicable to Berkshire* ........................................... $1,131 $1,071

*Includes interest earned by Berkshire (net of related income taxes) of $19 in 2010 and $38 in 2009.

BNSF

(Historical accounting through 2/12/10; purchase accounting subsequently) (in millions)

2010 2009

Revenues ............................................................... $16,850 $14,016

Operating earnings ....................................................... 4,495 3,254

Interest (Net) ............................................................ 507 613

Pre-Tax earnings ......................................................... 3,988 2,641

Net earnings ............................................................. 2,459 1,721

15Finance and Financial Products

This, our smallest sector, includes two rental companies, XTRA (trailers) and CORT (furniture), and

Clayton Homes, the country's leading producer and financer of manufactured homes.

Both of our leasing businesses improved their performances last year, albeit from a very low base.

XTRA increased the utilization of its equipment from 63% in 2009 to 75% in 2010, thereby raising pre-tax

earnings to $35 million from $17 million in 2009. CORT experienced a pickup in business as the year progressed

and also significantly tightened its operations. The combination increased its pre-tax results from a loss of

$3 million in 2009 to $18 million of profit in 2010.

At Clayton, we produced 23,343 homes, 47% of the industry's total of 50,046. Contrast this to the peak

year of 1998, when 372,843 homes were manufactured. (We then had an industry share of 8%.) Sales would have

been terrible last year under any circumstances, but the financing problems I commented upon in the 2009 report

continue to exacerbate the distress. To explain: Home-financing policies of our government, expressed through

the loans found acceptable by FHA, Freddie Mac and Fannie Mae, favor site-built homes and work to negate the

price advantage that manufactured homes offer.

We finance more manufactured-home buyers than any other company. Our experience, therefore,

should be instructive to those parties preparing to overhaul our country's home-loan practices. Let's take a look.

Clayton owns 200,804 mortgages that it originated. (It also has some mortgage portfolios that it

purchased.) At the origination of these contracts, the average FICO score of our borrowers was 648, and 47%

were 640 or below. Your banker will tell you that people with such scores are generally regarded as questionable

credits.

Nevertheless, our portfolio has performed well during conditions of stress. Here's our loss experience

during the last five years for originated loans:

Year

Net Losses as a Percentage

of Average Loans

2006 .............................. 1.53%

2007 .............................. 1.27%

2008 .............................. 1.17%

2009 .............................. 1.86%

2010 .............................. 1.72%

Our borrowers get in trouble when they lose their jobs, have health problems, get divorced, etc. The

recession has hit them hard. But they want to stay in their homes, and generally they borrowed sensible amounts

in relation to their income. In addition, we were keeping the originated mortgages for our own account, which

means we were not securitizing or otherwise reselling them. If we were stupid in our lending, we were going to

pay the price. That concentrates the mind.

If home buyers throughout the country had behaved like our buyers, America would not have had the

crisis that it did. Our approach was simply to get a meaningful down-payment and gear fixed monthly payments

to a sensible percentage of income. This policy kept Clayton solvent and also kept buyers in their homes.

Home ownership makes sense for most Americans, particularly at today's lower prices and bargain

interest rates. All things considered, the third best investment I ever made was the purchase of my home, though I

would have made far more money had I instead rented and used the purchase money to buy stocks. (The two best

investments were wedding rings.) For the $31,500 I paid for our house, my family and I gained 52 years of

terrific memories with more to come.

16But a house can be a nightmare if the buyer's eyes are bigger than his wallet and if a lender – often

protected by a government guarantee – facilitates his fantasy. Our country's social goal should not be to put

families into the house of their dreams, but rather to put them into a house they can afford.

Investments

Below we show our common stock investments that at yearend had a market value of more than

$1 billion.

12/31/10

Shares Company

Percentage of

Company

Owned Cost * Market

(in millions)

151,610,700 American Express Company ........................ 12.6 $ 1,287 $ 6,507

225,000,000 BYD Company, Ltd. .............................. 9.9 232 1,182

200,000,000 The Coca-Cola Company .......................... 8.6 1,299 13,154

29,109,637 ConocoPhillips .................................. 2.0 2,028 1,982

45,022,563 Johnson & Johnson ............................... 1.6 2,749 2,785

97,214,584 Kraft Foods Inc. ................................. 5.6 3,207 3,063

19,259,600 Munich Re ...................................... 10.5 2,896 2,924

3,947,555 POSCO ........................................ 4.6 768 1,706

72,391,036 The Procter & Gamble Company .................... 2.6 464 4,657

25,848,838 Sanofi-Aventis .................................. 2.0 2,060 1,656

242,163,773 Tesco plc ....................................... 3.0 1,414 1,608

78,060,769 U.S. Bancorp .................................... 4.1 2,401 2,105

39,037,142 Wal-Mart Stores, Inc. ............................. 1.1 1,893 2,105

358,936,125 Wells Fargo & Company .......................... 6.8 8,015 11,123

Others ......................................... 3,020 4,956

Total Common Stocks Carried at Market .............. $33,733 $61,513

*This is our actual purchase price and also our tax basis; GAAP "cost" differs in a few cases because of

write-ups or write-downs that have been required.

In our reported earnings we reflect only the dividends our portfolio companies pay us. Our share of the

undistributed earnings of these investees, however, was more than $2 billion last year. These retained earnings

are important. In our experience – and, for that matter, in the experience of investors over the past century –

undistributed earnings have been either matched or exceeded by market gains, albeit in a highly irregular manner.

(Indeed, sometimes the correlation goes in reverse. As one investor said in 2009: "This is worse than divorce.

I've lost half my net worth – and I still have my wife.") In the future, we expect our market gains to eventually at

least equal the earnings our investees retain.

************

In our earlier estimate of Berkshire's normal earning power, we made three adjustments that relate to

future investment income (but did not include anything for the undistributed earnings factor I have just

described).

The first adjustment was decidedly negative. Last year, we discussed five large fixed-income

investments that have been contributing substantial sums to our reported earnings. One of these – our Swiss Re

note – was redeemed in the early days of 2011, and two others – our Goldman Sachs and General Electric

preferred stocks – are likely to be gone by yearend. General Electric is entitled to call our preferred in October

and has stated its intention to do so. Goldman Sachs has the right to call our preferred on 30 days notice, but has

been held back by the Federal Reserve (bless it!), which unfortunately will likely give Goldman the green light

before long.

17All three of the companies redeeming must pay us a premium to do so – in aggregate about $1.4 billion –

but all of the redemptions are nevertheless unwelcome. After they occur, our earning power will be significantly

reduced. That's the bad news.

There are two probable offsets. At yearend we held $38 billion of cash equivalents that have been

earning a pittance throughout 2010. At some point, however, better rates will return. They will add at least

$500 million – and perhaps much more – to our investment income. That sort of increase in money-market yields

is unlikely to come soon. It is appropriate, nevertheless, for us to include improved rates in an estimate of

"normal" earning power. Even before higher rates come about, furthermore, we could get lucky and find an

opportunity to use some of our cash hoard at decent returns. That day can't come too soon for me: To update

Aesop, a girl in a convertible is worth five in the phone book.

In addition, dividends on our current common stock holdings will almost certainly increase. The largest

gain is likely to come at Wells Fargo. The Federal Reserve, our friend in respect to Goldman Sachs, has frozen

dividend levels at major banks, whether strong or weak, during the last two years. Wells Fargo, though

consistently prospering throughout the worst of the recession and currently enjoying enormous financial strength

and earning power, has therefore been forced to maintain an artificially low payout. (We don't fault the Fed: For

various reasons, an across-the-board freeze made sense during the crisis and its immediate aftermath.)

At some point, probably soon, the Fed's restrictions will cease. Wells Fargo can then reinstate the

rational dividend policy that its owners deserve. At that time, we would expect our annual dividends from just

this one security to increase by several hundreds of millions of dollars annually.

Other companies we hold are likely to increase their dividends as well. Coca-Cola paid us $88 million

in 1995, the year after we finished purchasing the stock. Every year since, Coke has increased its dividend. In

2011, we will almost certainly receive $376 million from Coke, up $24 million from last year. Within ten years, I

would expect that $376 million to double. By the end of that period, I wouldn't be surprised to see our share of

Coke's annual earnings exceed 100% of what we paid for the investment. Time is the friend of the wonderful

business.

Overall, I believe our "normal" investment income will at least equal what we realized in 2010, though

the redemptions I described will cut our take in 2011 and perhaps 2012 as well.

************

Last summer, Lou Simpson told me he wished to retire. Since Lou was a mere 74 – an age Charlie and

I regard as appropriate only for trainees at Berkshire – his call was a surprise.

Lou joined GEICO as its investment manager in 1979, and his service to that company has been

invaluable. In the 2004 Annual Report, I detailed his record with equities, and I have omitted updates only

because his performance made mine look bad. Who needs that?

Lou has never been one to advertise his talents. But I will: Simply put, Lou is one of the investment

greats. We will miss him.

************

Four years ago, I told you that we needed to add one or more younger investment managers to carry on

when Charlie, Lou and I weren't around. At that time we had multiple outstanding candidates immediately

available for my CEO job (as we do now), but we did not have backup in the investment area.

It's easy to identify many investment managers with great recent records. But past results, though

important, do not suffice when prospective performance is being judged. How the record has been achieved is

crucial, as is the manager's understanding of – and sensitivity to – risk (which in no way should be measured by

beta, the choice of too many academics). In respect to the risk criterion, we were looking for someone with a

hard-to-evaluate skill: the ability to anticipate the effects of economic scenarios not previously observed. Finally,

we wanted someone who would regard working for Berkshire as far more than a job.

18When Charlie and I met Todd Combs, we knew he fit our requirements. Todd, as was the case with

Lou, will be paid a salary plus a contingent payment based on his performance relative to the S&P. We have

arrangements in place for deferrals and carryforwards that will prevent see-saw performance being met by

undeserved payments. The hedge-fund world has witnessed some terrible behavior by general partners who have

received huge payouts on the upside and who then, when bad results occurred, have walked away rich, with their

limited partners losing back their earlier gains. Sometimes these same general partners thereafter quickly started

another fund so that they could immediately participate in future profits without having to overcome their past

losses. Investors who put money with such managers should be labeled patsies, not partners.

As long as I am CEO, I will continue to manage the great majority of Berkshire's holdings, both bonds

and equities. Todd initially will manage funds in the range of one to three billion dollars, an amount he can reset

annually. His focus will be equities but he is not restricted to that form of investment. (Fund consultants like to

require style boxes such as "long-short," "macro," "international equities." At Berkshire our only style box is

"smart.")

Over time, we may add one or two investment managers if we find the right individuals. Should we do

that, we will probably have 80% of each manager's performance compensation be dependent on his or her own

portfolio and 20% on that of the other manager(s). We want a compensation system that pays off big for

individual success but that also fosters cooperation, not competition.

When Charlie and I are no longer around, our investment manager(s) will have responsibility for the

entire portfolio in a manner then set by the CEO and Board of Directors. Because good investors bring a useful

perspective to the purchase of businesses, we would expect them to be consulted – but not to have a vote – on the

wisdom of possible acquisitions. In the end, of course, the Board will make the call on any major acquisition.

One footnote: When we issued a press release about Todd's joining us, a number of commentators

pointed out that he was "little-known" and expressed puzzlement that we didn't seek a "big-name." I wonder

how many of them would have known of Lou in 1979, Ajit in 1985, or, for that matter, Charlie in 1959. Our goal

was to find a 2-year-old Secretariat, not a 10-year-old Seabiscuit. (Whoops – that may not be the smartest

metaphor for an 80-year-old CEO to use.)

Derivatives

Two years ago, in the 2008 Annual Report, I told you that Berkshire was a party to 251 derivatives

contracts (other than those used for operations at our subsidiaries, such as MidAmerican, and the few left over at

Gen Re). Today, the comparable number is 203, a figure reflecting both a few additions to our portfolio and the

unwinding or expiration of some contracts.

Our continuing positions, all of which I am personally responsible for, fall largely into two categories.

We view both categories as engaging us in insurance-like activities in which we receive premiums for assuming

risks that others wish to shed. Indeed, the thought processes we employ in these derivatives transactions are

identical to those we use in our insurance business. You should also understand that we get paid up-front when

we enter into the contracts and therefore run no counterparty risk. That's important.

Our first category of derivatives consists of a number of contracts, written in 2004-2008, that required

payments by us if there were bond defaults by companies included in certain high-yield indices. With minor

exceptions, we were exposed to these risks for five years, with each contract covering 100 companies.

In aggregate, we received premiums of $3.4 billion for these contracts. When I originally told you in

our 2007 Annual Report about them, I said that I expected the contracts would deliver us an "underwriting

profit," meaning that our losses would be less than the premiums we received. In addition, I said we would

benefit from the use of float.

19Subsequently, as you know too well, we encountered both a financial panic and a severe recession. A

number of the companies in the high-yield indices failed, which required us to pay losses of $2.5 billion. Today,

however, our exposure is largely behind us because most of our higher-risk contracts have expired. Consequently, it

appears almost certain that we will earn an underwriting profit as we originally anticipated. In addition, we have had

the use of interest-free float that averaged about $2 billion over the life of the contracts. In short, we charged the

right premium, and that protected us when business conditions turned terrible three years ago.

Our other large derivatives position – whose contracts go by the name of "equity puts" – involves

insurance we wrote for parties wishing to protect themselves against a possible decline in equity prices in the

U.S., U.K., Europe and Japan. These contracts are tied to various equity indices, such as the S&P 500 in the U.S.

and the FTSE 100 in the U.K. In the 2004-2008 period, we received $4.8 billion of premiums for 47 of these

contracts, most of which ran for 15 years. On these contracts, only the price of the indices on the termination date

counts: No payments can be required before then.

As a first step in updating you about these contracts, I can report that late in 2010, at the instigation of

our counterparty, we unwound eight contracts, all of them due between 2021 and 2028. We had originally

received $647 million in premiums for these contracts, and the unwinding required us to pay $425 million.

Consequently, we realized a gain of $222 million and also had the interest-free and unrestricted use of that

$647 million for about three years.

Those 2010 transactions left us with 39 equity put contracts remaining on our books at yearend. On

these, at their initiation, we received premiums of $4.2 billion.

The future of these contracts is, of course, uncertain. But here is one perspective on them. If the prices

of the relevant indices are the same at the contract expiration dates as these prices were on December 31, 2010 –

and foreign exchange rates are unchanged – we would owe $3.8 billion on expirations occurring from 2018 to

2026. You can call this amount "settlement value."

On our yearend balance sheet, however, we carry the liability for those remaining equity puts at

$6.7 billion. In other words, if the prices of the relevant indices remain unchanged from that date, we will record

a $2.9 billion gain in the years to come, that being the difference between the liability figure of $6.7 billion and

the settlement value of $3.8 billion. I believe that equity prices will very likely increase and that our liability will

fall significantly between now and settlement date. If so, our gain from this point will be even greater. But that,

of course, is far from a sure thing.

What is sure is that we will have the use of our remaining "float" of $4.2 billion for an average of about

10 more years. (Neither this float nor that arising from the high-yield contracts is included in the insurance float

figure of $66 billion.) Since money is fungible, think of a portion of these funds as contributing to the purchase

of BNSF.

As I have told you before, almost all of our derivatives contracts are free of any obligation to post

collateral – a fact that cut the premiums we could otherwise have charged. But that fact also left us feeling

comfortable during the financial crisis, allowing us in those days to commit to some advantageous purchases.

Foregoing some additional derivatives premiums proved to be well worth it.

On Reporting and Misreporting: The Numbers That Count and Those That Don't

Earlier in this letter, I pointed out some numbers that Charlie and I find useful in valuing Berkshire and

measuring its progress.

Let's focus here on a number we omitted, but which many in the media feature above all others: net

income. Important though that number may be at most companies, it is almost always meaningless at Berkshire.

Regardless of how our businesses might be doing, Charlie and I could – quite legally – cause net income in any

given period to be almost any number we would like.

20We have that flexibility because realized gains or losses on investments go into the net income figure,

whereas unrealized gains (and, in most cases, losses) are excluded. For example, imagine that Berkshire had a

$10 billion increase in unrealized gains in a given year and concurrently had $1 billion of realized losses. Our net

income – which would count only the loss – would be reported as less than our operating income. If we had

meanwhile realized gains in the previous year, headlines might proclaim that our earnings were down X% when

in reality our business might be much improved.

If we really thought net income important, we could regularly feed realized gains into it simply because

we have a huge amount of unrealized gains upon which to draw. Rest assured, though, that Charlie and I have

never sold a security because of the effect a sale would have on the net income we were soon to report. We both

have a deep disgust for "game playing" with numbers, a practice that was rampant throughout corporate America

in the 1990s and still persists, though it occurs less frequently and less blatantly than it used to.

Operating earnings, despite having some shortcomings, are in general a reasonable guide as to how our

businesses are doing. Ignore our net income figure, however. Regulations require that we report it to you. But if

you find reporters focusing on it, that will speak more to their performance than ours.

Both realized and unrealized gains and losses are fully reflected in the calculation of our book value.

Pay attention to the changes in that metric and to the course of our operating earnings, and you will be on the

right track.

************

As a p.s., I can't resist pointing out just how capricious reported net income can be. Had our equity puts

had a termination date of June 30, 2010, we would have been required to pay $6.4 billion to our counterparties at

that date. Security prices then generally rose in the next quarter, a move that brought the corresponding figure

down to $5.8 billion on September 30th. Yet the Black-Scholes formula that we use in valuing these contracts

required us to increase our balance-sheet liability during this period from $8.9 billion to $9.6 billion, a change

that, after the effect of tax accruals, reduced our net income for the quarter by $455 million.

Both Charlie and I believe that Black-Scholes produces wildly inappropriate values when applied to

long-dated options. We set out one absurd example in these pages two years ago. More tangibly, we put our

money where our mouth was by entering into our equity put contracts. By doing so, we implicitly asserted that

the Black-Scholes calculations used by our counterparties or their customers were faulty.

We continue, nevertheless, to use that formula in presenting our financial statements. Black-Scholes is

the accepted standard for option valuation – almost all leading business schools teach it – and we would be

accused of shoddy accounting if we deviated from it. Moreover, we would present our auditors with an

insurmountable problem were we to do that: They have clients who are our counterparties and who use BlackScholes values for the same contracts we hold. It would be impossible for our auditors to attest to the accuracy of

both their values and ours were the two far apart.

Part of the appeal of Black-Scholes to auditors and regulators is that it produces a precise number.

Charlie and I can't supply one of those. We believe the true liability of our contracts to be far lower than that

calculated by Black-Scholes, but we can't come up with an exact figure – anymore than we can come up with a

precise value for GEICO, BNSF, or for Berkshire Hathaway itself. Our inability to pinpoint a number doesn't

bother us: We would rather be approximately right than precisely wrong.

John Kenneth Galbraith once slyly observed that economists were most economical with ideas: They

made the ones learned in graduate school last a lifetime. University finance departments often behave similarly.

Witness the tenacity with which almost all clung to the theory of efficient markets throughout the 1970s and

1980s, dismissively calling powerful facts that refuted it "anomalies." (I always love explanations of that kind:

The Flat Earth Society probably views a ship's circling of the globe as an annoying, but inconsequential,

anomaly.)

21Academics' current practice of teaching Black-Scholes as revealed truth needs re-examination. For that

matter, so does the academic's inclination to dwell on the valuation of options. You can be highly successful as

an investor without having the slightest ability to value an option. What students should be learning is how to

value a business. That's what investing is all about.

Life and Debt

The fundamental principle of auto racing is that to finish first, you must first finish. That dictum is

equally applicable to business and guides our every action at Berkshire.

Unquestionably, some people have become very rich through the use of borrowed money. However,

that's also been a way to get very poor. When leverage works, it magnifies your gains. Your spouse thinks you're

clever, and your neighbors get envious. But leverage is addictive. Once having profited from its wonders, very

few people retreat to more conservative practices. And as we all learned in third grade – and some relearned in

2008 – any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a

single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart

people.

Leverage, of course, can be lethal to businesses as well. Companies with large debts often assume that

these obligations can be refinanced as they mature. That assumption is usually valid. Occasionally, though, either

because of company-specific problems or a worldwide shortage of credit, maturities must actually be met by

payment. For that, only cash will do the job.

Borrowers then learn that credit is like oxygen. When either is abundant, its presence goes unnoticed.

When either is missing, that's all that is noticed. Even a short absence of credit can bring a company to its knees.

In September 2008, in fact, its overnight disappearance in many sectors of the economy came dangerously close

to bringing our entire country to its knees.

Charlie and I have no interest in any activity that could pose the slightest threat to Berkshire's wellbeing. (With our having a combined age of 167, starting over is not on our bucket list.) We are forever conscious

of the fact that you, our partners, have entrusted us with what in many cases is a major portion of your savings. In

addition, important philanthropy is dependent on our prudence. Finally, many disabled victims of accidents

caused by our insureds are counting on us to deliver sums payable decades from now. It would be irresponsible

for us to risk what all these constituencies need just to pursue a few points of extra return.

A little personal history may partially explain our extreme aversion to financial adventurism. I didn't

meet Charlie until he was 35, though he grew up within 100 yards of where I have lived for 52 years and also

attended the same inner-city public high school in Omaha from which my father, wife, children and two

grandchildren graduated. Charlie and I did, however, both work as young boys at my grandfather's grocery store,

though our periods of employment were separated by about five years. My grandfather's name was Ernest, and

perhaps no man was more aptly named. No one worked for Ernest, even as a stock boy, without being shaped by

the experience.

On the facing page you can read a letter sent in 1939 by Ernest to his youngest son, my Uncle Fred.

Similar letters went to his other four children. I still have the letter sent to my Aunt Alice, which I found – along

with $1,000 of cash – when, as executor of her estate, I opened her safe deposit box in 1970.

Ernest never went to business school – he never in fact finished high school – but he understood the

importance of liquidity as a condition for assured survival. At Berkshire, we have taken his $1,000 solution a bit

further and have pledged that we will hold at least $10 billion of cash, excluding that held at our regulated utility

and railroad businesses. Because of that commitment, we customarily keep at least $20 billion on hand so that we

can both withstand unprecedented insurance losses (our largest to date having been about $3 billion from Katrina,

the insurance industry's most expensive catastrophe) and quickly seize acquisition or investment opportunities,

even during times of financial turmoil.

2223We keep our cash largely in U.S. Treasury bills and avoid other short-term securities yielding a few

more basis points, a policy we adhered to long before the frailties of commercial paper and money market funds

became apparent in September 2008. We agree with investment writer Ray DeVoe's observation, "More money

has been lost reaching for yield than at the point of a gun." At Berkshire, we don't rely on bank lines, and we

don't enter into contracts that could require postings of collateral except for amounts that are tiny in relation to

our liquid assets.

Furthermore, not a dime of cash has left Berkshire for dividends or share repurchases during the past

40 years. Instead, we have retained all of our earnings to strengthen our business, a reinforcement now running

about $1 billion per month. Our net worth has thus increased from $48 million to $157 billion during those four

decades and our intrinsic value has grown far more. No other American corporation has come close to building

up its financial strength in this unrelenting way.

By being so cautious in respect to leverage, we penalize our returns by a minor amount. Having loads of

liquidity, though, lets us sleep well. Moreover, during the episodes of financial chaos that occasionally erupt in our

economy, we will be equipped both financially and emotionally to play offense while others scramble for survival.

That's what allowed us to invest $15.6 billion in 25 days of panic following the Lehman bankruptcy in 2008.

The Annual Meeting

The annual meeting will be held on Saturday, April 30th

Carrie Kizer from our home office will be the .

ringmaster, and her theme this year is Planes, Trains and Automobiles. This gives NetJets, BNSF and BYD a

chance to show off.

As always, the doors will open at the Qwest Center at 7 a.m., and a new Berkshire movie will be shown at

8:30. At 9:30 we will go directly to the question-and-answer period, which (with a break for lunch at the Qwest's

stands) will last until 3:30. After a short recess, Charlie and I will convene the annual meeting at 3:45. If you decide

to leave during the day's question periods, please do so while Charlie is talking. (Act fast; he can be terse.)

The best reason to exit, of course, is to shop. We will help you do that by filling the 194,300-squarefoot hall that adjoins the meeting area with products from dozens of Berkshire subsidiaries. Last year, you did

your part, and most locations racked up record sales. In a nine-hour period, we sold 1,053 pairs of Justin boots,

12,416 pounds of See's candy, 8,000 Dairy Queen Blizzards® and 8,800 Quikut knives (that's 16 knives per

minute). But you can do better. Remember: Anyone who says money can't buy happiness simply hasn't learned

where to shop.

GEICO will have a booth staffed by a number of its top counselors from around the country, all of

them ready to supply you with auto insurance quotes. In most cases, GEICO will be able to give you a

shareholder discount (usually 8%). This special offer is permitted by 44 of the 51 jurisdictions in which we

operate. (One supplemental point: The discount is not additive if you qualify for another, such as that given

certain groups.) Bring the details of your existing insurance and check out whether we can save you money. For

at least half of you, I believe we can.

Be sure to visit the Bookworm. It will carry more than 60 books and DVDs, including the Chinese

language edition of Poor Charlie's Almanack, the ever-popular book about my partner. So what if you can't read

Chinese? Just buy a copy and carry it around; it will make you look urbane and erudite. Should you need to ship

your book purchases, a shipping service will be available nearby.

If you are a big spender – or merely a gawker – visit Elliott Aviation on the east side of the Omaha

airport between noon and 5:00 p.m. on Saturday. There we will have a fleet of NetJets aircraft that will get your

pulse racing. Come by bus; leave by private jet.

24An attachment to the proxy material that is enclosed with this report explains how you can obtain the

credential you will need for admission to the meeting and other events. As for plane, hotel and car reservations,

we have again signed up American Express (800-799-6634) to give you special help. Carol Pedersen, who

handles these matters, does a terrific job for us each year, and I thank her for it. Hotel rooms can be hard to find,

but work with Carol and you will get one.

Airlines have often jacked up prices – sometimes dramatically so – for the Berkshire weekend. If you

are coming from far away, compare the cost of flying to Kansas City versus Omaha. The drive is about 21

⁄2 hours

and it may be that you can save significant money, particularly if you had planned to rent a car in Omaha.

At Nebraska Furniture Mart, located on a 77-acre site on 72

nd

Street between Dodge and Pacific, we

will again be having "Berkshire Weekend" discount pricing. Last year the store did $33.3 million of business

during its annual meeting sale, a volume that – as far as I know – exceeds the one-week total of any retail store

anyplace. To obtain the Berkshire discount, you must make your purchases between Tuesday, April 26

th

and

Monday, May 2nd

inclusive, and also present your meeting credential. The period's special pricing will even

apply to the products of several prestigious manufacturers that normally have ironclad rules against

discounting but which, in the spirit of our shareholder weekend, have made an exception for you.

We appreciate their cooperation. NFM is open from 10 a.m. to 9 p.m. Monday through Saturday, and 10 a.m.

to 6 p.m. on Sunday. On Saturday this year, from 5:30 p.m. to 8 p.m., NFM is having a picnic to which you are

all invited.

At Borsheims, we will again have two shareholder-only events. The first will be a cocktail reception

from 6 p.m. to 9 p.m. on Friday, April  29

th

The second, the main gala, will be held on Sunday, May 1 .

st

, from

9 a.m. to 4 p.m. On Saturday, we will be open until 6 p.m. On Sunday, around 1 p.m., I will be at Borsheims

with a smile and a shoeshine, selling jewelry just as I sold men's shirts at J.C. Penney's 63 years ago.

I've told Susan Jacques, Borsheims' CEO, that I'm still a hotshot salesman. But I see doubt in her eyes.

So cut loose and buy something from me for your wife or sweetheart (presumably the same person). Make me

look good.

We will have huge crowds at Borsheims throughout the weekend. For your convenience, therefore,

shareholder prices will be available from Monday, April 25

th

through Saturday, May 7

th

,During that period .

please identify yourself as a shareholder by presenting your meeting credentials or a brokerage statement that

shows you are a Berkshire shareholder.

On Sunday, in the mall outside of Borsheims, a blindfolded Patrick Wolff, twice U.S. chess champion,

will take on all comers – who will have their eyes wide open – in groups of six. Nearby, Norman Beck, a

remarkable magician from Dallas, will bewilder onlookers. Additionally, we will have Bob Hamman and Sharon

Osberg, two of the world's top bridge experts, available to play bridge with our shareholders on Sunday

afternoon.

Gorat's and Piccolo's will again be open exclusively for Berkshire shareholders on Sunday, May 1st

.

Both will be serving until 10 p.m., with Gorat's opening at 1 p.m. and Piccolo's opening at 4 p.m. These

restaurants are my favorites and – still being a growing boy – I will eat at both of them on Sunday evening.

Remember: To make a reservation at Gorat's, call 402-551-3733 on April 1

st

(but not before) and at Piccolo's

call 402-342-9038.

We will again have the same three financial journalists lead the question-and-answer period, asking

Charlie and me questions that shareholders have submitted to them by e-mail. The journalists and their e-mail

addresses are: Carol Loomis, of Fortune, who may be emailed at cloomis@fortunemail.com; Becky Quick, of

CNBC, at BerkshireQuestions@cnbc.com, and Andrew Ross Sorkin, of The New York Times, at

arsorkin@nytimes.com.

From the questions submitted, each journalist will choose the dozen or so he or she decides are the

most interesting and important. The journalists have told me your question has the best chance of being selected

if you keep it concise, avoid sending it in at the last moment, make it Berkshire-related and include no more than

two questions in any email you send them. (In your email, let the journalist know if you would like your name

mentioned if your question is selected.)

Neither Charlie nor I will get so much as a clue about the questions to be asked. We know the

journalists will pick some tough ones, and that's the way we like it.

25We will again have a drawing at 8:15 a.m. on Saturday at each of 13 microphones for those

shareholders wishing to ask questions themselves. At the meeting, I will alternate the questions asked by the

journalists with those from the winning shareholders. We hope to answer at least 60 questions. From our

standpoint, the more the better. Our goal, which we pursue both through these annual letters and by our meeting

discussions, is to give you a better understanding of the business that you own.

************

For good reason, I regularly extol the accomplishments of our operating managers. Equally important,

however, are the 20 men and women who work with me at our corporate office (all on one floor, which is the

way we intend to keep it!).

This group efficiently deals with a multitude of SEC and other regulatory requirements, files a 14,097-

page Federal income tax return along with state and foreign returns, responds to countless shareholder and media

inquiries, gets out the annual report, prepares for the country's largest annual meeting, coordinates the Board's

activities – and the list goes on and on.

They handle all of these business tasks cheerfully and with unbelievable efficiency, making my life

easy and joyful. Their efforts go beyond activities strictly related to Berkshire: They deal with 48 universities

(selected from 200 applicants) who will send students to Omaha this school year for a day with me and also

handle all kinds of requests that I receive, arrange my travel, and even get me hamburgers for lunch. No CEO has

it better.

This home office crew has my deepest thanks and deserves yours as well. Come to our Woodstock for

Capitalism on April 30

th

and tell them so.

February 26, 2011 Warren E. Buffett

Chairman of the Board

26Memo

To: Berkshire Hathaway Managers ("The All-Stars")

cc: Berkshire Directors

From: Warren E. Buffett

Date: July 26, 2010

This is my biennial letter to reemphasize Berkshire's top priority and to get your help on

succession planning (yours, not mine!).

The priority is that all of us continue to zealously guard Berkshire's reputation. We can't be

perfect but we can try to be. As I've said in these memos for more than 25 years: "We can afford to lose

money – even a lot of money. But we can't afford to lose reputation – even a shred of reputation." We

must continue to measure every act against not only what is legal but also what we would be happy to have

written about on the front page of a national newspaper in an article written by an unfriendly but intelligent

reporter.

Sometimes your associates will say "Everybody else is doing it." This rationale is almost always

a bad one if it is the main justification for a business action. It is totally unacceptable when evaluating a

moral decision. Whenever somebody offers that phrase as a rationale, in effect they are saying that they

can't come up with a good reason. If anyone gives this explanation, tell them to try using it with a reporter

or a judge and see how far it gets them.

If you see anything whose propriety or legality causes you to hesitate, be sure to give me a call.

However, it's very likely that if a given course of action evokes such hesitation, it's too close to the line

and should be abandoned. There's plenty of money to be made in the center of the court. If it's

questionable whether some action is close to the line, just assume it is outside and forget it.

As a corollary, let me know promptly if there's any significant bad news. I can handle bad news

but I don't like to deal with it after it has festered for awhile. A reluctance to face up immediately to bad

news is what turned a problem at Salomon from one that could have easily been disposed of into one that

almost caused the demise of a firm with 8,000 employees.

104Somebody is doing something today at Berkshire that you and I would be unhappy about if we

knew of it. That's inevitable: We now employ more than 250,000 people and the chances of that number

getting through the day without any bad behavior occurring is nil. But we can have a huge effect in

minimizing such activities by jumping on anything immediately when there is the slightest odor of

impropriety. Your attitude on such matters, expressed by behavior as well as words, will be the most

important factor in how the culture of your business develops. Culture, more than rule books, determines

how an organization behaves.

In other respects, talk to me about what is going on as little or as much as you wish. Each of you

does a first-class job of running your operation with your own individual style and you don't need me to

help. The only items you need to clear with me are any changes in post-retirement benefits and any

unusually large capital expenditures or acquisitions.

************

I need your help in respect to the question of succession. I'm not looking for any of you to retire

and I hope you all live to 100. (In Charlie's case, 110.) But just in case you don't, please send me a letter

(at home if you wish) giving your recommendation as who should take over tomorrow if you should

become incapacitated overnight. These letters will be seen by no one but me unless I'm no longer CEO, in

which case my successor will need the information. Please summarize the strengths and weaknesses of

your primary candidate as well as any possible alternates you may wish to include. Most of you have

participated in this exercise in the past and others have offered your ideas verbally. However, it's

important to me to get a periodic update, and now that we have added so many businesses, I need to have

your thoughts in writing rather than trying to carry them around in my memory. Of course, there are a few

operations that are run by two or more of you – such as the Blumkins, the Merschmans, the pair at Applied

Underwriters, etc. – and in these cases, just forget about this item. Your note can be short, informal,

handwritten, etc. Just mark it "Personal for Warren."

Thanks for your help on all of this. And thanks for the way you run your businesses. You make

my job easy.

WEB/db

P.S. Another minor request: Please turn down all proposals for me to speak, make contributions, intercede

with the Gates Foundation, etc. Sometimes these requests for you to act as intermediary will be

accompanied by "It can't hurt to ask." It will be easier for both of us if you just say "no." As an added

favor, don't suggest that they instead write or call me. Multiply 76 businesses by the periodic "I think he'll

be interested in this one" and you can understand why it is better to say no firmly and immediately.

105